Annual Report 2006

The Natural Leader in

Islamic Banking

VISION
STRATEGY
STRENGTH
Contents

1 Mission and Strategic Objectives

2 Financial Highlights

4 The Albaraka Banking Group (ABG)

6 Board of Directors and Shari’a Supervisory Board

8 Directors’ Report

12 Executive & Senior Management

14 President & Chief Executive’s Report

28 Unified Shari’a Supervisory Board Report

29 Auditors’ Report

30 Consolidated Balance Sheet

31 Consolidated Statement of Income

32 Consolidated Statement of Cash Flows

33 Consolidated Statement of Changes in Equity

34 Consolidated Statement of Changes in Restricted Investment Accounts

35 Consolidated Statement of Sources and Uses of Charity Fund

36 Consolidated Statement of Sources and Uses of Good Faith Qard Fund

37 Notes to the Consolidated Financial Statements

63 ABG Contact Directory

 Mission
Our mission is to be the leading Islamic
banking group with a worldwide
presence, offering retail, commercial,
investment banking and treasury services
strictly in accordance with the principles
of the Shari’a.

Mission and Strategic Objectives

Strategic Objectives To enhance shareholder value whilst pursing a strategy of
business growth and geographical expansion.

To provide innovative and high quality research and

development into Islamic financial products which comply fully
with the principles of Shari’a Law and Islamic values, for the
benefit of our customers.

To utilize the Group’s geographical presence to distribute its

products and services and promote cross border services.

To maintain the highest international standards of corporate

governance and regulatory compliance.

1
 Year to Year to
31 December 2006 31 December 2005

Earnings (US$ millions)

Operating Income 339.6 297.8
Operating Expenses 166.9 151.3
Net Income Attributable to Equity Shareholders of the Parent 80.2 79.4

Earnings per Share (US cents) 15 16

Financial Position (US$ millions)

Total Assets 7,625.8 6,307.1
Total Shareholders’ Equity 978.6 566.3
Total Liabilities 1,717.3 1,506.8
Customer current and other accounts 1,334.0 1,185.6
Unrestricted Investment Accounts 4,697.4 4,033.1

Ratios (%)
Profitability
Return on Average Shareholders’ Equity 10.39% 16.06%
Return on Average Paid-In Capital 15.77% 22.25%
Return on Average Assets 1.15% 1.40%

Capital
Shareholders’ Equity as % of Total Assets 12.83% 8.98%
Financial Highlights Total Financing and Investments as a multiple of Equity (times) 5.57 7.38

Asset Quality
Net Asset Value per Share (US$) 1.6 1.5

Other
Number of Employees 5,435 4,846
Net Income attributable to Equity Total number of branches 215 185
Shareholders of the Parent (US$ 000)

80,252
CAPITALISATION ( US$ Thousands)
Authorised 1,500,000 1,500,000
Subscribed and fully paid up 630,000 387,998

Total Assets (US$ 000)

7,625,827
Total Shareholders Equity (US$ 000)

978,597
Registered Address
P.O. Box 1882, Manama, Kingdom of Bahrain

Albaraka Banking Group Annual Report 2006

2
 All figures in US$ Millions as applicable

Total Assets Total Shareholders’ Equity

4,116.5 5,056.7 6,307.1 7,625.8 373.3 422.0 566.3 978.6

2003 2004 2005 2006 2003 2004 2005 2006

Customer Current & Other Accounts Unrestricted Investment Accounts

736.5 910.6 1,185.6 1,334.0 2,680.9 3,333.1 4,033.1 4,697.4

2003 2004 2005 2006 2003 2004 2005 2006

Net Income attributable to equity shareholders of the Parent

27.3 36.8 79.4 80.2

2003 2004 2005 2006

Operating Income Operating Expenses

97.7 106.5 151.3 166.9

182.0 191.8 297.8 339.6
2003 2004 2005 2006
2003 2004 2005 2006

Return on Average Shareholders’ Equity Return on Average Paid in Capital

7.31% 9.27% 16.06% 10.39% 8.39% 11.33% 22.25% 15.77%

2003 2004 2005 2006 2003 2004 2005 2006

Number of Employees Total Number of Branches

3,233 3,844 4,846 5,435 133 150 185 215

2003 2004 2005 2006 2003 2004 2005 2006

Albaraka Banking Group Annual Report 2006

3
 Albaraka Banking Group (ABG)

AL BARAKA
TURK
JORDAN PARTICIPATION
ISLAMIC BANK BANK EGYPTIAN
55.5% 67.8% SAUDI FINANCE
BANK
73.7%

BANQUE AL
BARAKA
D’ALGERIE
55.9%

AL BARAKA
ISLAMIC BANK
PAKISTAN-
Branches
AL BARAKA
ISLAMIC BANK
BAHRAIN
78.3%

ABG GROUP
HEADQUARTERS

AL AMIN
BANK E.C.
BAHRAIN
100%

BANK ET-
TAMWEEL AL-
TUNISI, AL-SAUDI
78.4%

AL BARAKA
BANK LTD.
SOUTH AFRICA
AL BARAKA AL BARAKA 51.7%
BANK SUDAN BANK
86.2%
LEBANON
96.3%

Albaraka Banking Group Annual Report 2006

4
 INDIA

CHINA

EUROPE

LONG
TERM AFRICA
STRATEGY

NORTH
&
EXPANSION SOUTH
STRATEGY AMERICA

MEDIUM
TERM GCC
STRATEGY

MALAYSIA
&
THE FAR EAST
SYRIA
In-principle approval
obtained from local
authorities

Albaraka Banking Group Annual Report 2006

5
 Board of Directors Shari’a Supervisory Board

Shaikh Saleh Abdullah Kamel Shaikh Dr. Abdul Sattar Abu Ghuddah
Chairman Chairman

Mr. Abdulla A. Saudi Shaikh Abdullah Mannea

Board of Directors Vice Chairman Member
and Shari’a Shaikh Dr. Abdulatif Al Mahmood Al Mahmood
Mr. Abdullah Saleh Kamel
Supervisory Board Board Member Member

Mr. Saleh Mohamed Al-Yousef Shaikh Dr. Abdulaziz Alfawzan

Board Member Member

Mr. Adnan Ahmed Yousif Dr. Ahmed Mohyedeen Ahmed

Board Member Member

Dr. Anwar Ibrahim

Board Member

Mr. Abdul Elah A. Sabbahi

Board Member

Mr. Ibrahim Fayez Al Shamsi

Board Member

Mr. Ghanim Saad M. Al Saad

Board Member

Mr. Jamal S.J. Bin Galaita

Board Member

Mr. Ghassan Abdul Kareem A. Sulaiham

Board Member

Mr. Salah Othman Abuzaid

Secretary to the Board

Albaraka Banking Group Annual Report 2006

6
Board Committees

EXECUTIVE COMMITTEE BOARD AFFAIRS AND REMUNERATION COMMITTEE

Mr. Abdullah Saleh Kamel Mr. Ibrahim Fayez Al Shamsi

Committee Chairman Committee Chairman

Mr. Abdul Elah A. Sabbahi Mr. Jamal S.J. Bin Galaita

Member Member

Mr. Ghanim Saad M. Al Saad Mr. Ghanim Saad M. Al Saad

Member Member

Mr. Adnan Ahmed Yousif Mr. Adnan Ahmed Yousif

Member Member

AUDIT COMMITTEE RISK COMMITTEE

Mr. Saleh Mohamed Al-Yousef Mr. Abdul Elah A. Sabbahi

Committee Chairman Committee Chairman

Dr. Anwar Ibrahim Mr. Jamal S.J. Bin Galaita

Member Member

Mr. Ibrahim Fayez Al Shamsi Mr. Ghassan Abdul Kareem A. Sulaiham

Member Member

Mr. Adnan Ahmed Yousif

Member

Albaraka Banking Group Annual Report 2006

7

Sheikh Saleh Abdullah Kamel
Chairman
Directors’ Report
(All figures in US Dollars unless otherwise stated)
“The Group now has in place
growth strategies which are
based on its intimate knowledge
of the markets in which it is
represented and its expertise in
the wide range of Islamic retail,
commercial and investment
banking services in which it is
engaged.”
8
Global and Regional Economies
Despite high prevailing oil and commodity
prices, global GDP growth strengthened in
2006, reflecting both the rapid expansion in
the economies of the undeveloped countries,
which grew by an estimated 7.0%, and
moderate growth in the developed world.
The largest contributors were once again
China and India, whose economies are
estimated to have grown by 10.4% and
8.7% respectively, but all regions experienced
some growth. Among the developed
countries the United States economy, which
began the new year strongly but moderated
later on in response to higher short-term
interest rates and a weakening housing
market, recorded an estimated 3.2% average
rate of growth. Growth also accelerated in
Europe, driven by robust consumer demand
and expanding exports, with an estimated
2.5% overall increase. Japan’s recovery,
begun in 2005, maintained its momentum as
its GDP expanded by an estimated 2.9%, led
by an 11% expansion in exports.
High energy prices continued to be the key
drivers for the economies of the Arab oil and
gas producers, while oil importers in the Arab
world benefited from strong investment and
remittance flows from both the high-income
oil exporters and the euro zone, with
increased agricultural output in the Maghreb
and higher tourism earnings throughout the
Middle East and North Africa region being
additional contributing factors. Strong
liquidity fed through to greater consumer
demand and appreciating regional stock and
housing markets. Growing demand-led
inflation, meanwhile, was met by rising
interest rates and the gradual removal of the
monetary policy stimulus that has
characterised the past several years.
As for the countries where Albaraka Banking
Group is mainly represented, 9 out of 10 of
them had a good year, with GDP growth at or
exceeding 6% in the majority of cases.
Turkey’s economy managed slightly less with
a 5.2% growth rate, while South Africa’s
recorded 4.9% and Algeria’s 4.8%. The
exception, of course, was Lebanon, where
the war and continuing political uncertainty
weighed heavily on economic activity in the
first three quarters and, although
reconstruction efforts undoubtedly contributed
to growth in the latter part of the year, overall
GDP is expected to have contracted by about
3.2% in 2006.
2006 Review
Beyond a doubt the year was marked by the
success of Albaraka Banking Group’s which
was crystallized by the increase of the paid up
capital through the offering of the new share
issue by means of an Initial Public Offering
(IPO), which resulted in an increase in the
paid up capital from $510 million to $630
million and in the shareholders’ equity from
$0.6 billion to about $1.0 billion. The IPO was
successfully concluded in July 2006 with the
dual listing of ABG’s shares on the Bahrain
and Dubai International Financial Exchange.
The issue attracted a wide range of investors
from outside the Arab world as well as from
GCC and other Arab countries. Accordingly,
the number of ABG’s shareholders has
increased substantially to more than 1,700.
The expanded economic activity across most
of the Group’s operating areas was reflected,
in every case save Lebanon, in a surge in its
operating revenues from jointly financed
contracts with unrestricted investment
accounts, as current accounts rose in the
majority of cases and investment accounts
grew significantly at all units.
After distribution to its investors of their share
of income, the Group’s share as mudarib and
on its own account rose by 29% to $170
million. Including the income from
self-financed contracts and investments,
mudarib share for managing restricted
investment accounts, fees, commissions and
other operating income, the Group reported
a 14% increase in total operating income to
$340 million and, after operating expenses, a
net operating income 18% higher than the
previous year at $173 million. After deduction
of provisions and taxation, the net income
was $124 million compared with 2005’s $103
million, an increase of 20%.
In light of the Group’s performance in 2006,
the Board of Directors has recommended a
dividend distribution to the shareholders of
5.2% of the paid up capital, comprising cash
dividends amounting to $12 million, and
bonus shares amounting to $21 million. The
Board has also recommended a remuneration
distribution of $430,000, a transfer of $8
million to legal reserves, with $39 million
being allocated to retained earnings.
Albaraka Banking Group Annual Report 2006
Enhancement
of shareholder
value is our
prime business
driver.

Directors’ Report
(All figures in US Dollars unless otherwise stated)
The Way Ahead
“The Group has formulated its
strategies for the next phase of
its development, founded on
four aims: increasing profitability,
product innovation, technology
enhancement and improved
customer service.”
10
The existence of Albaraka Banking Group
today, and indeed its continuing success,
owes much to the perception that there is a
genuine need for a global Islamic banking
network offering a full range of retail,
commercial, investment banking and treasury
services. ABG was therefore formed to bring
together, under single ownership, ten
separate banks and financial services
companies in the Middle East, Pakistan, North
Africa, Turkey, and South Africa, in order to
create a financially strong platform from
which to expand worldwide.
From its beginnings in 2002 with an initial
core management team, ABG’s first task was
to achieve full consolidation under AAOIFI
and IFRS Islamic and International Reporting
Standards. It then proceeded to establish a
corporate governance infrastructure consistent
with modern international banking standards,
including Board level committees, with
responsibility for audit, Board member and
executive remuneration and risk management,
and Management committees, to address
Asset/Liability management, Credit,
continued Information Technology and Basel II
compliance amongst others.
The success of ABG’s share issue now makes
it possible for the Group to begin
implementing the next phase of its long-term
strategy, which is to expand its operations in
regional, Arab and international markets,
both through expansion of the existing units’
branch networks and by expansion into new
markets. The issued share capital of several of
the unit banks have therefore been increased
to better fit them for the tasks ahead. Steps
have also been taken to apply for a banking
licence to establish a unit in Syria, while
studies are in various stages of advancement
with a view to establishing operations in
selected countries in the Far East and the
GCC. At the same time, at Group
headquarters the core management team is
being expanded to ensure senior
management control of, and ongoing
development in, areas such as commercial
banking, global treasury, risk management
and credit policy, legal services, IT, operations
and administration.
Moving now beyond its initial strategic
objectives of consolidation, conversion from a
closed company to a public joint stock
company, the raising of fresh capital and the
commencement of geographical expansion,
the Group has formulated its strategies for
the next phase of its development. These
strategies are founded on four aims:
increasing profitability, product innovation,
technology enhancement and improved
customer service. The Group aims to
achieve these objectives through
rationalising and strengthening its internal
business processes and support
methodologies, enhancing its image and
diversifying its product and business base to
increase its competitiveness and market
share in its targeted operational areas.
Much has been achieved in ABG in its first
year of public ownership, with the
implementation of effective corporate
governance and control systems, policies
and processes, ground-breaking public
disclosure and transparency in a highly
successful IPO and installation of advanced
reporting IT systems. In a highly competitive
market, the Group has shown a creditable
performance in 2006.
All this has been achieved through the
continuing hard work, dedication and
application of the management team and all
the operating unit heads and staff, and I
should like to take this opportunity on behalf
of the Board to extend our gratitude to
everyone involved.
We would also like to thank our Shari’a
Supervisory Board, and the many regulatory
authorities with which the Group deals, for
their assistance and advice over the past year,
particularly the Ministry of Commerce and
Industry, the Central Bank of Bahrain, the
other central banks responsible for the
regulation of the units located outside
Bahrain, the Bahrain Stock Exchange and the
Dubai Financial Services Authority, all of
whom have contributed so greatly to the
success of our enterprise to date.
For and on behalf of the Board of Directors
Saleh Abdullah Kamel
Chairman
Albaraka Banking Group Annual Report 2006
Our Strategy is to
increase profitability,
innovate products,
enhance technology
and further improve
customer service.
 Adnan Ahmed Yousif
President & Chief Executive

Othman Ahmed Suliman

Deputy Chief Executive

Sayed Majeed Hussain Alawi

Senior Vice President - Head of Internal Audit

K. Krishnamoorthy
Senior Vice President - Head of Strategic Planning

Abdulrahman Shehab
Senior Vice President - Head of Operations & Administration
Executive & Senior
Hamad Abdulla Ali Eqab
Management First Vice President - Head of Financial Control

Jozsef Peter Szalay

First Vice President - Head of Credit & Risk Management

Abdul Rauf Sivany

First Vice President - Head of Treasury & Investments

Dr. Ahmed Mohyedeen

Head of Research & Development

Albaraka Banking Group Annual Report 2006

12
ABG Management

Albaraka Banking Group Annual Report 2006

13

Mr. Adnan Ahmed Yousif
President and Chief Executive
President & Chief
Executive’s Report
(All figures in US Dollars unless otherwise stated)
“ABG exhibited good progress in
2006 as the Group’s operating
units took full advantage of
increased sources of funding and
investment accounts to maximise
its turnover, particularly in
murabaha and investment
opportunities.”
14
Introduction
2006 was once again a year of solid progress
for the Group, as it expanded both its
funding sources and its earning assets out of
nearly all its operating units. Increases of over
12% in the Group’s total customer accounts
and 16% in its unrestricted investment
accounts were mainly responsible for the
16% rise in total liabilities. The restricted
investment accounts, too, showed a healthy
rise, growing by 32% over the course of the
year. Total equity, of course, also grew
significantly, as a direct result of ABG’s Initial
Public Offering concluded in July and the
addition of its net income for the year. Total
assets in turn increased by 21%, largely due
to growth in the operating units’ aggregate
murabaha portfolios and investments and
their Ijarah Muntahia Bittamleek portfolios.
Although the influx of new capital emanating
from ABG’s highly successful IPO did not
impact on the Group’s financial resources
until well into the second half of the year,
ABG nevertheless made good use of the time
available to it in the second half to enlarge
the capital of those banking units most able
to make use of it. During the year, ABG
increased its participation in the share capital
of five of the ten units as part of the Group’s
strategy to prepare them for expansion in
their respective territories. The results of these
initiatives can be seen by the 20% increase in
the Group’s bottom line net income.
In addition, progress was made in our
application for a licence to operate in Syria -
where we expect to be opening for business
this year. In the meantime, as the Chairman
has pointed out in the Directors’ Report, we
are actively engaged in considering a number
of Far Eastern and Gulf locations for
expansion in the medium term.
ABG expects to commence its own
commercial banking operations, as forecast in
my report last year, probably at the same time
as Albaraka Islamic Bank and Al Amin Bank
are merged into a single solely Bahrain-based
entity later in 2007.
Now, as we look forward to what we
confidently anticipate will be a further year of
performance delivery, we will also be
continuing the work begun with ABG’s
formation, as we gradually weld together a
powerful banking group that will increasingly
benefit from the synergies available from
cross-border business interaction between
our different units, while accessing the
advantages of our combined strength and
will to pursue our Mission – to be the leading
Islamic banking group, worldwide.
Review of Units
I am pleased once again to provide a brief
review of the work of each of our constituent
banks. All figures are stated in the US Dollar
equivalents of the audited local currency-
based balance sheets and profit & loss
accounts, prepared in accordance with the
Islamic Accounting Standards issued by the
Accounting and Auditing Organisation for
Islamic Financial Institutions, and without
adjustment for consolidation purposes.
Each unit is managed by its respective Board
of Directors, whose reporting lines are
ultimately to the Parent, ABG, but whose
decision-making is decentralised within an
overall strategic direction.
Jordan Islamic Bank (Jordan) (“JIB”)
Jordan Islamic Bank was established in 1978
as Jordan’s first Islamic bank. Listed on the
Amman Stock Exchange, it is the oldest unit
in the Group. JIB currently maintains a
network of 64 branch together with a service
office at its bonded warehouse. Its 59-strong
ATM network is linked to JONET, the Jordan
national payment network, as well as the Visa
International network. One of only two
Islamic banks in Jordan, JIB is its 3rd largest
bank by total assets and total deposits held,
despite the fact that it cannot extend to its
customers the full range of facilities permitted
by the banking regulations, as many of these
fail to conform to the principles of the
Shari’a. JIB’s extensive product range includes
murabaha, diminishing musharaka, Ijara
Muntahia Bittamleek, as well as investments
in Islamic sukuks and property development
for on-sale or lease to its customers. It
maintains real-time electronic linkage
between all its branches and head office, and
offers a full range of retail services including
personal finance products, rent finance to
enable customers to acquire their own houses,
credit/charge card issuance, e-banking, speed
cash and MoneyGram transfer services.
In 2006 JIB transferred the growing business
of its financial brokerage office, based at the
Amman Stock Exchange, to a separate
brokerage company established for the
purpose. It also obtained the coveted ISO
9001:2000 in management systems,
reflecting its strong performance in
production and management-related issues
and its push towards achieving its objectives
Albaraka Banking Group Annual Report 2006
With a banking presence
in ten geographically
diverse regions and an
asset base in excess of
US$ 7 billion, Albaraka
Banking Group has the
financial strength to take
advantage of the
growing opportunities
in the marketplace.
in terms of improving, updating and
developing its services. With an enviable and
consistent track record since its inception, the
bank is proud that over the past 10 years it
has paid out to its shareholders cash dividends
alone equal to more than a third of its capital,
in addition to dividends in the form of bonus
shares equivalent to more than 100% of its
capital.
President & Chief
Executive’s Report
continued
“For 2007, JIB intends to
maintain its current level of
growth, expanding its
investment and securities
portfolio and to increase
commissions and fee earnings.”
16
In 2006 Jordan’s GDP grew by an estimated
6.0%, which, although below the 7.2%
growth seen in 2005 and 7.7% in 2004,
nevertheless evidenced a respectable trend,
particularly in the circumstances of the
continuing instability in nearby countries. The
country’s balance of trade improved as
exports soared by 18% while its imports
increased by only 10%, feeding through into
a fall in the unemployment rate and net debt
and an increase in the Central Bank’s foreign
exchange reserves to over $6 billion,
representing six months’ imports. Export
growth was driven chiefly by the clothing,
machinery and transport, chemicals and
tobacco industries while the reduced growth
rate of imports reflected the lower growth of
the economy as a whole, as did the fall in the
number of traded shares on the Amman
Stock Exchange and the share index. As part
of its policy of maintaining the Jordanian
Dinar/US dollar peg and to combat the rising
rate of inflation, which reached 6%
compared with 3.5% in 2005, the Central
Bank again increased interest rates over the
course of the year.
Despite the reduction in the economic growth
rate, JIB was able to increase both its
customer accounts and its unrestricted
investment accounts, which rose by 7% and
10% respectively, utilising these resources to
expand its overall asset base by 9%, in
particular its murabaha sales receivables,
which rose by $142 million or 23%,
investment properties ($28 million or 83%)
and Ijarah Muntahia Bittamleek ($17 million
or 122%) portfolios.
The expanded business activity yielded a 15%
increase in income to $86.3 million from
jointly financed sales and investments which,
after accounting for the bank’s share as
Mudarib, produced a 16% higher return of
$37.6 million to the unrestricted investment
account holders. JIB’s total share of income
from this source was $48.7 million, 15%
higher than that for 2005. After including
income from its own investments, its Mudarib
share from managing restricted investment
accounts and revenues from banking services,
fees and commissions, its total operating
income was 10% higher at $6.1 million.
Despite a 16% rise in operating expenses to
$28.2 million, partly on account of a rise in
staff expenses and partly due to ongoing
investment in information technology, the
operating profit was 6% higher at $41.6
million which, after taxation, returned a net
profit of $21.8 million, 18% up on the year
before.
In 2007 JIB intends to maintain its current
level of growth, in particular expanding its
investment and securities portfolios, and to
increase its commission and fee earnings and
breadth of services provided. It also plans to
issue its own Islamic sukuk. Meanwhile, it will
make increasing investment in information
technology.
Albaraka Türk Participation Bank
(Turkey) (“ABTPB”)
ABTPB was incorporated in 1984 and granted
its Special Finance House licence by the
Central Bank in January 1985, permitting it to
collect and utilise funds on an interest-free
basis. Although it is the smallest of the four
Turkish participation banks, it is the most
efficient by conventional criteria, maintaining
the highest ratio of assets and funds collected
both per branch office and employee. This
was so in 2006 even following a ferocious
pace of expansion, as it added 20 new
branches to its network to finish the year with
63 in total, each with its own ATM.
Turkey continued to maintain its three-year
IMF economic stability programme in 2006,
although a weakening of the Lira in the
second quarter and an increase in the rate of
inflation led to a sharp tightening of monetary
policy and a slowdown in economic growth.
The pace of growth weakened as GDP,
estimated to be up 5.2% in 2006, fell below
2005’s 5.8% growth rate. Industrial output
growth nevertheless accelerated towards the
end of the year, hitting a five-month high in
November.
In 2006, partly as a result of the greatly
expanded branch network, ABTPB achieved a
10% increase in its total customer accounts
and a 19% increase in its unrestricted
investment accounts. This growth in turn
helped to fund the growth in its murabaha
sales receivable portfolio, which expanded by
27% to $1.288 billion, as well as the 9%
increase in its Ijarah Muntahia Bittamleek
portfolio, which topped $103 million. This
was consequently reflected in a 21% increase
in total income from jointly financed sales and
investments to $149.8 million. With an
increased share allocated to the unrestricted
investment account holders, who received
$107.1 million or 34% more than in 2005,
after taking into consideration the bank’s
share as Mudarib as well as for its own
account, ABTPB’s net share of income from
these investment accounts was, at $42.7
million, only slightly (3%) less than the
previous year. However, significantly higher
revenues from its own sales and investments
Albaraka Banking Group Annual Report 2006
– up 147% at $30.9 million - and from
banking services, fees and commissions led to
a 28% increase in operating income to
$117.1 million. Lower depreciation and
amortisation and other charges once again
more than compensated for increased staff
costs so that the net operating income at
$61.3 million was 89% higher than the
equivalent for 2005. Following a much
reduced taxation credit compared with 2005’s
$7 million, and the absence of any monetary
loss for hyperinflation compared with that
year’s $5 million adjustment, the bank
reported a 58% higher net profit for 2006, of
$50.7 million.
ABTPB will maintain the momentum on
branch expansion during 2007 and also
intends to develop and market new products,
placing the emphasis for customer base
expansion on small and medium-sized
enterprises and consumer customers. In doing
so it will intensify the marketing of its
business credit card and alternative
distribution channels such as Internet and call
centre banking. While it moves towards Basel
II capital allocation methodology and anti-
money laundering compliance, it will also be
preparing for its own Initial Public Offering of
its shares in due course.
“ABTPB will maintain the
momentum on branch expansion
during 2007 and develop and
market new products.”
Albaraka Banking Group Annual Report 2006
The Egyptian Saudi Finance Bank (Egypt)
(“ESFB”)
The Egyptian Saudi Finance Bank was
incorporated in March 1980 and is listed on
the Cairo Stock Exchange. It is one of 30
banks in Egypt, of which only two are Islamic
banks. As at the end of 2006 ESFB had a
network of 15 branches, in addition to several
money changing bureaux in hotels and other
strategically located sites. The bank is one of
Egypt’s smallest, with 1.2% of non-
governmental deposits and 0.9% of total
private sector credit. It currently employs 662
staff and its network includes the only
women’s branch in Egypt, in addition to a unit
dedicated to customers with special needs.
Egypt’s GDP grew by 6.8% in the fiscal year to
June 2006, as industrial production rose by
almost 9%, tourism revenues increased by
13% and Suez Canal revenues recorded their
highest levels ever. Its traditionally large
structural trade deficit stood at $11.1 billion
in 2005 as exports, of which nearly half are
petroleum and its derivatives, rose strongly by
over 30% to $16.1 billion while imports rose
by 26% to $27.2 billion. However, this trade
deficit was offset in part by strong services
and transfers balances including overseas
workers’ remittances, so that a current
account surplus of $2.2 billion was recorded.
Estimates are for a similar trade deficit and
current account surplus for fiscal 2006. The
government’s programme of economic
reform, begun in 2004, continued in 2006 as
banks that were unable to increase their
capital to the required level were forced to
merge with their better capitalised
competitors. However the rate of inflation,
which had averaged 5% over 2001-5, picked
up in 2006, peaking at an annualised 9% in
September and forcing the Central Bank to
push up interest rates.
Despite the negative impact of higher interest
rates on ESFB as a non-interest paying Islamic
bank, it was able to increase its customer
current accounts, by 24% to $80 million, and
its unrestricted investment accounts, by 28%
to $1.040 billion, which additional funds were
employed in a general expansion of its asset
base which grew to $1.281 billion.
Consequently, its murabaha sales receivables
increased over the year by 23% to $540
million, while its mudaraba financing portfolio
more than doubled to $45 million and its non-
trading investments rose by 35% to $512
million. This business expansion led in turn to
a 20% increase in income from jointly
financed sales and investments to $80.4
million. ESFB distributed all of this income to
the unrestricted investment account holders,
retaining only its share as Mudarib of $13.9
million. After adding increased revenues from
banking services, fees and commissions, it
recorded a 12% increase in total operating
income, to $22.2 million. As operating
expenses rose by 20% to $11.0 million the
bank therefore reported a net income of $4.7
million, a 38% improvement over 2005.
As part of its efforts to ensure a well-
diversified portfolio, during 2006 the bank
entered into a number of large syndicated
transactions in consort with other Egyptian
banks and international banks, covering a
wide spread of industrial projects. It also
extended its direct financings to large
governmental and semi-governmental
companies in different sectors and made a
number of investments in new companies
engaged in a variety of activities, including
leasing, commercial centres and real estate
development. On the liabilities front, the year
saw the successful launch of the bank’s new
3-year Euro deposit certificate with prizes and
profit paid out quarterly, and its US$ deposit
certificate with prizes and profit paid in
advance. The bank also launched its first
Islamic investment fund, in an amount of $50
million, the success of which was evidenced
by its 50% oversubscription. In 2006 ESFB
also commenced drawdown of the second
tranche of funds made available by the Social
Development Fund for the funding of small
businesses and projects under a special
scheme introduced in 2004, having fully
utilised the first trance by 2005. It meanwhile
progressed with the implementation of its
plan to be Basel II-compliant within five years,
reviewing its credit policy and credit rating
system and processes, establishing
management committees and appointing
staff with specific responsibilities for the
changes necessary.
In 2007 ESFB intends to expand its ATM
system and to open three new branches, to
bring its network up to 18, in addition to two
new exchange bureaus located in tourism
centres. It will prepare for the launch of its
second investment fund which it hopes will be
as successful as the first. It will also embark on
a comprehensive plan to upgrade its
computer network and systems, aiming to
link all branches on-line with the central
system and to introduce modern on-line
services including Internet, telephone and
SMS banking, as well as to establish a backup
centre to ensure continuity of service.
17
Banque Albaraka D’Algerie S.P.A.
(Algeria) (“BABD”)
Banque Albaraka D’Algerie was formed in
1991 and is the only one of Algeria’s 18 banks
operating according to the principles of the
Shari’a. Having opened 5 new branches in
2006 it now has a network of 16 operating
throughout Algeria, maintained by 565 staff.
Despite its size, and thanks to its strong
foreign trade financing tradition, it holds an
important position in the market, ranking
second among the private banks and
maintaining a 5.6% total market share.
In 2006 the Algerian government maintained
its economic policies as it sought to reduce
unemployment and stimulate investment-led
growth through massive expenditure on
labour-intensive housing, road and water
projects and encouragement of foreign
investment by gradual liberalisation of
selected sectors of the economy. In an
environment of high energy prices the
President & Chief
Executive’s Report
continued
“Over the next two years BABD
plans to expand its branch
network and develop its retail
banking services by broadening its
product range.”
18
economy grew strongly for the fourth year
running, enjoying an estimated 4.8% GDP
growth rate, mainly driven by the oil and gas
sector which contributed 98% of all exports
but with important activity also noted in the
construction, public works, agriculture and
service industries. At the same time, inflation
was kept under control, declining to about
2%, while the official unemployment rate
maintained its steady decline, falling to
12.3% by the year end. Foreign reserves
soared by $20 billion to reach $75 billion,
representing 3.5 years’ imports, and foreign
debt was reduced to $4.7 billion or 4% of
GDP.
Over the course of the year BABD’s total
assets rose by 18% to $626 million, funded
mostly by an increased issued share capital
and by increases in its customer accounts and
unrestricted investment accounts. Other than
liquid assets the additional funds were
employed in extending the bank’s murabaha
portfolio, as sales receivables increased by
19% to $369 million, and its Ijarah Muntahia
Bittamleek portfolio which grew by 20% to
nearly $23 million. As a result, the total
income from jointly financed sales and
investments grew by 32% to $27.7 million so
that, after accounting for a 13% increase in
the share due to the unrestricted investment
account holders, the bank’s share including its
share as Mudarib was up 43% at $19.1
million. Including revenues from banking
services, fees and commissions and other
operating income, BABD’s total operating
income was 63% higher at $41.0 million.
After operating expenses, at $21.4 million
27% above 2005’s on account of increased
staff costs, depreciation and amortisation due
in part to the network expansion, net income
was 51% higher, at $14.1 million.
Over the next two years BABD plans to open
a further 14 branches, as well as to install an
ATM network and replace its IT systems. It will
also be developing its retail banking services
by broadening its product range.
Albaraka Islamic Bank B.S.C. (E.C.)
(Bahrain) (“AIB”)
Albaraka Islamic Bank began as an offshore
investment bank in 1984 under the name of
Albaraka Islamic Investment Bank B.S.C.
(E.C.). In 1991 it spread its operations to
Pakistan when it was granted a licence to
operate there by the State Bank of Pakistan. It
changed its name to the present form after
being granted an additional commercial
banking licence in December 1998 by the
Bahrain Monetary Agency. AIB currently has
eleven branches in Pakistan, located in the
major centres of Lahore (3), Karachi (4),
Islamabad, Faisalabad and Rawalpindi (2), and
three in Bahrain. In view of the present
importance of the Pakistan unit - whose
activities constitute more than a third of the
bank’s total operations – and of the Pakistan
economy to the bank, the following economic
review focuses on Pakistan, while a review of
the Bahrain economy may be found in the
section dealing with Al Amin Bank below.
Driven by increased private consumption and
investment, Pakistan’s economy grew by an
estimated 6.2% in fiscal 2005/6, lower than
2005’s 7.3% but altogether a strong
performance in light of prevailing high
international oil prices and the impact of the
catastrophic damage of the October 2005
earthquake. Its merchandise trade deficit,
exacerbated by the increased cost of fuel as
well as of imported capital equipment, was
mainly responsible for the growing current
account deficit, which is estimated to have
reached 4.4% of GDP compared with 3.1%
in 2005. Inflation, however, subsided to an
estimated 7.9% from 9.1% the year before
and the determination of the State Bank to
reduce inflation through tighter monetary
policies whilst maintaining economic growth
appears to be having the desired effect, with
forecasts for a gradual reduction over the 5-
year period to 2011. As usual, agricultural
output and higher textile production were the
main drivers of the economy, but the
manufacturing and service sectors were also
important contributors.
Notwithstanding the high levels of
competition prevailing in the two
marketplaces of Pakistan and Bahrain, from
which it derives more than half of its business,
AIB’s unrestricted investment accounts grew
in 2006 by 16% to $436 million,
compensating for an 8% fall in customer
accounts and a 22% reduction in deposits
from banks and financial institutions. In
addition to a 10% increase in liquid assets,
the additional resources were utilised to
increase the murabaha, musharaka and Ijarah
Muntahia Bittamleek portfolios, as well as the
bank’s non-trading investments, although the
mudaraba portfolio was somewhat reduced.
This overall expansion helped to produce a
48% increase in income from jointly financed
sales and investments to $30.8 million. After
distributing the unrestricted investment
holders’ share amounting to $24.6 million - a
65% increase over 2005 - AIB earned
Albaraka Banking Group Annual Report 2006
(including its share as Mudarib) a net $6.2
million from these accounts. Although most
categories of other income also experienced
growth, its income from its own investments
fell from $7.7 million to $1.5 million and this
was the main reason for a 22% fall in total
operating income to $13.7 million. After
accounting for a 23% increase in operating
expenses to $13.0 million, largely due to
increased staff costs and other expenses, and
a small taxation charge, the bank made a net
loss of $3.5 million, compared with a net
profit in 2005 of $2.7 million.
AIB will be merged with Al Amin Bank during
the course of 2007 with a view to
consolidating and stregthening the Group’s
presence in Bahrain, while at the same time
giving the merged entity diversity in its
product offering. Significant synergies are
expected to be generated in the process. In
light of the small size of the Bahrain market
and the high level of competition among the
28 Islamic financial institutions (6 of which
are commercial banks) based there, AIB’s
medium term strategy aims at growing its
assets by some 20% over the next three years
by investing in or financing new projects in
other Arab world countries offering better
opportunities, in addition to building its
customer base at home through developing
and offering new products to its medium-
sized enterprise clients. Its plans for Basel II
“Significant business and
operational synergies are
expected to be generated by
the merger of AIB and Al Amin
Bank.”
Albaraka Banking Group Annual Report 2006
implementation by 2007 are meanwhile also
progressing well.
Al Amin Bank (E.C.) (Bahrain) (“AAB”)
AAB commenced business in 1987 as Al-
Amin Company for Securities & Investment
Funds (E.C.), but has operated since May
2001 as Al Amin Bank under an Islamic
investment banking licence granted at that
time by the Bahrain Monetary Agency.
Focused exclusively on the development and
delivery of Shari’a-compliant short-term
investment vehicles, it enjoys a commendable
reputation as the leading short-term liquidity
manager for institutional investors. It
pioneered the issue of short term Asset
Backed Securities in Bahrain, offering a choice
of fixed and variable income forms. To date it
has managed more than $3.9 billion in funds
on behalf of leading financial institutions and
high net-worth customers seeking
unmatched short-term investment solutions.
Although small (its assets represent only
3.9% of total Islamic bank assets in Bahrain)
its unique products have enabled it to carve
its own niche in the market.
In 2006 Bahrain’s real GDP expanded by
slightly more than 6% as it moderated from
2005’s 7.8% growth rate. Inflation was
manageable at an estimated 2.7%. One of
the fasting growing economies in the Arab
world, Bahrain’s economy is driven by oil -
which still accounts for some 30% of GDP -
retail and wholesale trade, monetary projects,
mining and real estate and services. A rise in
property development and construction in
recent years has been a particularly
noteworthy contributor, while the country’s
aluminium industry has been increasingly
expanding into downstream activities and the
tourism sector has also gained in importance.
The year 2005 was an exceptional one for
AAB, as it managed 72 issues with an
aggregate value of $470 million and
furthermore was successful in joining in
partnership with major banks in Bahrain and
Syria in the structuring and financing of a
number of major syndicated transactions.
Such opportunities were not, however,
available in such volumes in 2006, although it
did expand its murabaha portfolio
considerably (with end of the year sales
receivables standing at $239 million or more
than 500% up on the year before) as well as,
to a lesser extent, its Ijara portfolio. Its non-
trading investments also increased. As a result
it recorded a 31% increase in total assets, to
$431 million. This expansion was funded
largely by a 68% increase in its unrestricted
investment accounts, up from $160 million to
$270 million. As a consequence of the jump
in business turnover, total income from jointly
financed sales and investments increased by
44% over 2005 to US$14.8 million. After
accounting to the unrestricted investment
account holders for their share – which (net
of the bank’s share as Mudarib) rose by 54%
to $10.0 million – AAB’s share of income from
this source rose by 27% to $4.8 million.
However, it suffered a loss of $0.8 million
from its own investments, including income
from investments in associated companies,
compared with 2005’s substantial income of
$40.0 million, so that its operating income
was much reduced at $5.0 million compared
with 2005’s $43.9 million. After expenses of
$4.7 million its net operating income (and net
profit) fell to $0.3 million from $40.4 million
in 2005.
AAB and Albaraka Islamic Bank are scheduled
to be merged during 2007, from which time
its own goals of expanding its franchise and
upgrading its technology infrastructure will
be shared with those of AIB.
Albaraka Bank Sudan (Sudan) (“ABBS”)
Albaraka Bank Sudan, established in 1984,
currently maintains a network of 23
branches. At the end of 2005 it was ranked
11th out of the 26 Sudanese commercial
banks in total assets, but 10th in terms of net
profit.
Sudan has turned around a struggling
economy since 1997 with sound economic
policies and infrastructure investments,
supported by development of its oil reserves,
but much still needs to be done to lift its
people out of poverty and very high
unemployment. Sudan’s GDP grew by an
estimated 12% in 2006 to an estimated
$37.6 billion. The economy is mainly reliant
on agriculture, which contributes around
45% of local production, industrial
production, accounting for 28%, and the
service sector, 27%. The current rate of
output of oil is about 500,000 barrels/day of
which 80% is exported, generating 58% of
the country’s external revenues. Although
exports continued to rise in 2006, higher
imports pointed to an estimated current
account deficit of about $2.2 billion. Inflation
averaged above 7%.
2006 saw moderate but continuing growth at
ABBS. As its customer current and other
accounts rose by 20% and its unrestricted
19
investment accounts by 14% it was able to
expand its murabaha, Istisna’a and non-
trading investment portfolios, more than
compensating for a reduced musharaka
financing portfolio. Its total assets rose by
13% to $234 million as a result. Total income
from jointly financed sales and investments
consequently rose by 49% to $14.7 million so
that, after accounting to the unrestricted
account holders for their share (which itself
grew by 127% to a net $2.5 million after the
bank’s share as Mudarib), left the bank with
its own share of $12.3 million or 39% up on
2005. Increased banking revenues and other
operating income then led to a 35% higher
total operating income of $21.2 million.
However, although staff and other operating
expenses grew by a smaller margin than
income, provisions rose by 843% to $3.1
million and ABBS therefore reported a
virtually unchanged net profit for the year of
$4.2 million.
President & Chief
Executive’s Report
continued
“B.E.S.T.’s strategy is to expand its
branch network, upgrade its IT
systems and expand its Internet
facilities to enable its customers to
access its full product range.”
20
ABBS’ aims for 2007 are to increase market
share, mainly through the provision of an
improving and superior standard of service
and operations. The recent introduction of a
comprehensive electronic banking network
and modern IT systems has enabled it to
centralise most processing tasks at the head
office, shortening the handling processes
while providing customers with the capability
of accessing their accounts from any branch,
the first Sudanese bank to do so. It will
continue to be at the forefront of modern
banking practices in the years to come.
Bank Et-Tamweel Al-Tunisi Al-Saudi
(Tunisia) (“B.E.S.T.”)
B.E.S.T. was incorporated in Tunisia in 1983 as
a joint stock company with an offshore banking
licence. Amending legislation has however
permitted offshore banks since 1985 to
conduct onshore banking business in local
currency with Tunisian residents up to a ceiling
of 1% of the total deposits of all the
commercial banks. Within Tunisia, as the only
Islamic bank operating in the country, B.E.S.T.
provides Shari’a-compliant finance in the
economic areas permitted to it, which includes
the agricultural, industrial, tourism, and export
industries. The bank currently maintains a
network of 7 branches.
Despite the continuing high energy prices in
2006, the Tunisian economy managed to
record a 5.8% GDP growth rate, somewhat
higher than 2005’s 4.2%, partly due to
increased inward investment. Services (of
which tourism is the most important
contributor) form the main component of
GDP, with a 55% share, followed by industry
with 31.8% and agriculture with 13.2%.
Tunisia is committed to a free trade regime
and export-led growth, focused mainly on the
European Union, with which it has signed an
Association Agreement to gradually eliminate
trade and tariffs barriers to non-agricultural
goods, services and investments,
commencing in 2008. Ongoing economic
reforms include the privatisation of certain
sectors including telecommunications and
banking. Tunisia enjoys an investment-grade
credit rating from international rating
agencies and encourages foreign direct
investment through taxation and
employment-encouraging incentives.
B.E.S.T. enjoyed a relatively good year in
2006, expanding its total assets by 25% to
$254 million, largely through increases in its
murabaha and mudaraba portfolios, funded
by a 48% increase in its unrestricted
investment accounts, which reached $123
million by year end. Murabaha sales
receivables rose to $183 million from $133
million in 2005. As a result, the total income
from jointly financed sales and investments
grew by 42% to $11.2 million and, after
distribution to unrestricted investment
account holders of their net share after the
bank’s share as Mudarib – which increased by
34% to $3.9 million - the bank’s own share
rose by 47% to $7.3 million. Income from its
own investments, its Mudarib share from
restricted investment accounts, commissions
and fees and other income also all grew, so
that total operating income surged by 113%
to $18.4 million. However, operating
expenses also increased to $6.5 million.
Nevertheless, B.E.S.T. closed the year with a
net profit of $8.0 million, twice 2005’s $4.0
million.
The bank’s ongoing strategy is to expand its
branch network, increase its deposit base and
focus on selective financing projects with less
risk. It has created new internal units
addressing risk control, marketing and
organisation, and implemented a
comprehensive new credit policy. It is in the
process of upgrading its IT systems to
international standards and expanding its
Internet facilities to enable its customers to
access its full service range.
Albaraka Bank Limited (South Africa)
(“ABBL-S”)
Albaraka Bank Limited was established in
1989 as South Africa’s first Islamic bank and
even today remains the only bank in the
country to conduct all of its business
according to the Shari’a. Its activities - chiefly
equipment and residential and commercial
property finance through murabaha and
musharaka financing - are directed mainly at
the 1.5-2% of Muslims in the population and
have provided the impetus to the Muslim
community to move gradually away from the
riba system to Shari’a-compliant banking.
Apart from its Durban head office the bank
maintains five branches, in Durban,
Fordsburg, Pretoria, Lanasia and Cape Town.
The South African economy grew by 4.9% in
2006, above the 4.3% average for the five
year period 2002/6, aided by credit-driven
consumerism and increased household debt.
Global demand for its primary exports -
platinum, gold, diamonds and coal - helped
to boost merchandise exports, but imports
also rose, widening the trade deficit and
resulting in a current account deficit of about
Albaraka Banking Group Annual Report 2006
5% of GDP despite an increasing invisibles
flow from the expanding tourism industry.
Meanwhile the inflation rate, at 4.6%, was
less than expected despite – or perhaps
because of - the Central Bank’s monetary
policy tightening through four consecutive
interest rate rises and was well within the 3-
6% target.
Over the course of 2006 ABBL-S increased its
unrestricted investment accounts by 13% to
$173 million, enabling it to expand its total
assets by 12% to $209 million, the majority
of which was via a 17% increase in its
murabaha sales receivables, which reached
$136 million, and an 11% increase in its
musharaka financing portfolio, now
amounting to $47 million. The increase in
business activity was reflected in a
commensurate 12% uplift in the income
from jointly financed sales and investments,
which reached $16.7 million. As the entire
portfolio was managed on behalf of
customers with no participation from ABBL-S,
after accounting for the bank’s share as
Mudarib, amounting to $7.4 million or 23%
above the previous year’s figure, the total
paid out to investors was $9.3 million. To the
bank’s share from this source was added
revenues from fees, commissions and other
income, taking its total operating income up
“ABBL-S has made significant
progress towards Basel II
compliance and is in the process
of upgrading its IT systems.”
Albaraka Banking Group Annual Report 2006
to $8.8 million or 25% above that for 2005.
After deduction of operating expenses which
was 22% higher at $6.8 million, provisions
and taxation, ABBL-S returned a net profit of
$1.6 million, compared with 2005’s $1.2
million.
During the year ABBL-S continued to focus on
meeting the South African Reserve Bank’s
timetable for all South African banks to be
Basel II-compliant by January 2008 and as a
consequence was well placed by the end of
2006 for meeting all deadlines for field
testing and parallel running during 2007. It
also completed the integration of a number
of front-end systems into its present system
architecture. Following a review of the
present system’s capabilities compared with
the bank’s future business and regulatory
needs, it has endorsed the acquisition of an
interim solution with Islamic capabilities
pending a comprehensive assessment of
system needs and availability for long-term
implementation.
Albaraka Bank Lebanon S.A.L. (Lebanon)
(“ABBL”)
ABBL was established in 1992 as Lebanon’s
first Islamic bank and even today there
remains only 4 Islamic banks out of the
country’s total of 97. The absence prior to
2004 of appropriate laws and regulations to
govern the practice of Islamic banking in
Lebanon meant that for many years it had to
conduct Islamic banking activities whilst
being regulated in a conventional manner.
ABBL therefore concentrated largely on the
management of unrestricted investment
accounts and the provision of retail banking
services to small businesses and the general
public. ABBL maintains 5 branches in
Lebanon and is the smallest of the Group’s
units. Its products include finance for
housing, vehicles, household goods,
construction and medical equipment and
working capital.
The July 2006 war deeply and negatively
impacted the overall economic situation in
Lebanon, reversing much of the
improvements of recent years and causing an
estimated $3.6 billion in infrastructure
damage. The economy suffered badly, with
GDP estimated to have fallen by 3.2% to
$22.3 billion. The current account deficit of
$2.8 billion or 12.8% of GDP was not,
however, substantially worse than usual as
Lebanon has traditionally run a current
account deficit.
Despite the deleterious effect of the war on
the whole economy, ABBL’s customer
accounts rose by 37% to $26 million during
2006, while its unrestricted investment
accounts also grew, by some 4% to $81
million. This growth helped to fund an
increase in total assets to $128 million from
2005’s $122 million, all of which was placed
in liquid funds for the time being.
Notwithstanding a reduced level of murabaha
sales receivables at the end of the year,
however, the total income from jointly
financed sales and investments was virtually
unchanged at $2.8 million so that, after
distributing the unrestricted investment
account holders’ share and accounting for a
small loss on its own share, and after
including revenues from banking services,
fees and commissions and other operating
income totalling $3.6 million, total operating
income rose by 34% to $3.1 million.
Nevertheless, with increased operating
expenses across the board, aggregating $6
million, and a significantly higher financing
loss provision, ABBL’s net loss for the year rose
to $7.3 million from a $3.2 million loss in
2005.
For 2007, ABBL aims to expand its
relationships with corporate and private
companies, particularly those engaged in
export and import operations, offering
Shari’a-compliant trade finance and working
capital facilities. It also intends to develop and
market new Islamic investment funds and
improve its retail banking operations to meet
the demands of its customer base, while
focusing on reducing its problem loans
through greater debt collection efforts and
collateral realisation.
21
Corporate Governance
The Board of Directors
The Board of Directors is responsible for the
Group’s overall management. In particular,
the Board is responsible for approving the
Group’s overall business strategy, monitoring
its operations and taking critical business
decisions. In line with international best
practice, the Board has instituted corporate
governance measures to ensure that the
interests of the shareholders are protected,
including the appointment to the Board of
two independent non-executive directors.
ABG is administered by a Board of Directors
consisting of not less than five and not more
than eleven members, appointed and/or
elected in accordance with its Articles of
Association. However, subject to the
provisions of the law, the shareholders at an
Ordinary General Meeting may determine
that the number of directors shall exceed
eleven in order to permit additional expert or
non-executive directors to be appointed as
Appointed Directors (see below).
Shareholders are entitled to appoint one
Director for each 10% of the total of all
Ordinary Shares issued owned by them
(“Appointed Directors”). Shareholders forfeit
their right to vote for Elected Directors (see
“ABG has in place the latest
corporate governance practices
with independent directors, and
board and management
committees to manage the
group effectively.”
22
below) to the extent of the percentage of
Ordinary Shares cast in appointing Appointed
Directors. If a Shareholder holds a percentage
of shares that is insufficient to appoint
another Appointed Director, that Shareholder
may use the percentage that is held to vote
with other Shareholders to elect Elected
Directors.
The Ordinary General Meeting shall elect the
remainder of the Board (“Elected Directors”).
Elected Directors shall be selected from a list
of qualified nominees presented to the
Chairman of the Board of Directors before the
date of the Ordinary General Meeting at
which elections are scheduled to take place
and after obtaining the approval of the
Central Bank of Bahrain in respect of such
nominations.
Members of the Board of Directors hold office
for a three-year renewable term. There is no
age limit for retirement of the Directors. A
corporate person that has appointed one or
more Appointed Directors may replace them
by others at any time. An Elected Director may
be re-elected upon the expiry of his term of
office, and this shall be considered to be a
new nomination which requires satisfaction of
the conditions required to be satisfied by
nominees mentioned above. The term of
office of Directors may be extended by
resolution of the Bahrain Minister of Industry
& Commerce for a period not exceeding six
months at the request of the Board.
There are currently eleven Directors on the
Board, who have varied backgrounds and
experience and who individually and
collectively exercise independent and
objective judgement. Other than the
President & Chief Executive all Directors are
non-executive. The posts of Chairman and
President & Chief Executive are held by
different Directors and each has separate,
clearly defined responsibilities.
The Board of Directors meets regularly (usually
four times a year) and has a formal schedule
of matters reserved to it, considering key
aspects of the Group’s affairs referred to it for
decision. The Board reviews the Group’s
strategy and financial plans, all proposed
material changes to the Group’s policies,
structure and organisation, reports provided
to it on the operations of the Group (with
emphasis on organisational development, risk
management and information technology
development) and the performance of
executive management. The Board and its
Committees are supplied with full and timely
information to enable them to discharge their
responsibilities. All Directors have access to
the advice and services of the Secretary who
is responsible for ensuring that the Board
procedures and applicable rules and
regulations are observed.
The Board of Directors has overall
responsibility for the Group’s system of
internal control and its effectiveness. There
are established and ongoing procedures in
place for identifying, evaluating and
managing significant risks faced by the
Group, which are regularly reviewed by the
Board. The Group’s system of internal control
provides for a documented and auditable trail
of accountability and applies across its
operations, is designed to ensure effective
and efficient operation and compliance with
all applicable laws and regulations, and seeks
to manage risk with a view to avoiding
material errors, losses and fraud.
Board Committees
The Board has put in place a number of Board
committees, to which it has delegated
specific responsibilities. The principal Board
committees are:
Board Executive Committee
The Board Executive Committee is chaired
by Mr. Abdullah Saleh Kamel, a Director of
ABG. The other members are Mr. Adnan
Ahmed Yousif, President & Chief Executive
and a Director of ABG, Mr. Abdul Elah A.
Sabbahi, a Director of ABG and Mr. Ghanim
Bin Saad M. Al Saad, a Director of ABG. The
Board has delegated certain of its day-to-
day functions to the Board Executive
Committee, including certain financial,
administrative and credit matters.
Board Affairs and Remuneration
Committee
The Board Affairs and Remuneration
Committee meets at least once a year and
considers all material elements of
remuneration policy and the remuneration
and incentivisation of the Board, the Executive
Management Team and all other ABG
employees, and makes recommendations to
the Board on the framework for executive
remuneration and its costs. The Board Affairs
and Remuneration Committee is chaired by
Mr. Ibrahim Fayez Al Shamsi, a Director of
Albaraka Banking Group Annual Report 2006
ABG and its other members are Mr. Jamal S.J.
Bin Ghalaita, a Director of ABG, Mr. Ghanim
Bin Saad M. Al Saad, a Director of ABG and
Mr. Adnan Ahmed Yousif, President & Chief
Executive and a Director of ABG.
Audit Committee
The Audit Committee is chaired by Mr. Saleh
Mohamed Al-Yousef, a Director of ABG.
Other members are Dr. Anwar Ibrahim, a
Director of ABG and Mr. Ibrahim Fayez Al
Shamsi, a Director of ABG. The Audit
Committee meets formally at least four times
a year and external auditors attend at least
one meeting annually.
The external auditors have unrestricted access
to the Audit Committee and its Chairman. The
Audit Committee considers all matters relating
to financial control and reporting, internal and
external audits, the scope and results of the
audits, regulatory compliance and risk
management. The Audit Committee also
considers the annual audit plans, monitors the
independence of the external auditors and their
remuneration and makes recommendations to
the Board regarding the appointment and
retirement of the external auditors.
The various internal and financial controls and
processes are subject to independent review
by the Group’s Internal Audit Department and
external auditors and regulators as
appropriate. The reports of all of these review
bodies are forwarded to the Audit
Committee, who, acting on behalf of the
Board, ensures that appropriate corrective
action is taken where required. The Audit
Committee is informed directly by Internal
Audit’s reports submitted to it, and by its
discussions with external auditors, of the
work undertaken by them and the
conclusions they have reached, respectively.
The Committee reviews the Group’s annual
and interim financial statements, the
adequacy of loss provisions and reports by
external consultants on specific investigative
or advisory engagements.
Board Risk Committee
The Board Risk Committee is chaired by Mr.
Abdul Elah Sabbahi, Director of ABG. Other
members are Mr. Jamal S.J. Bin Ghalaita,
Director of ABG, Mr. Ghassan Abdul Kareem
A. Sulaihim, Director of ABG and Mr. Adnan
Ahmed Yousif, President & Chief Executive
and a Director of ABG. The Board Risk
Albaraka Banking Group Annual Report 2006
Committee meets formally at least four times
a year and can call for the attendance of the
Head of Credit & Risk Management and other
Senior Executives of the Group.
The risk appetite of the Group is determined
by the Board, as recommended by the Board
Risk Committee, which is responsible for
setting acceptable levels of risks to which the
Group may be exposed. Management has the
prime responsibility for identifying and
evaluating significant risks to the business of
the Group and for the design and operation
of appropriate internal controls. These risks
are assessed on a continuous basis.
Executive and Senior Management
In effecting full control over the Group, ABG’s
Executive and Senior Management Team has
developed a system for filtering down to
Group units the centralised strategic decisions
taken at the parent level, thus ensuring the
implementation of Groupwide policies and
common operational processes and
procedures across the Group.
As at the end of 2006, the team consisted of
the President & Chief Executive, the Deputy
Chief Executive and the Heads of Internal
Audit, Strategic Planning, Operations and
Administration, Financial Control, Credit &
Risk Management and Treasury & Investment.
The Heads of Legal Affairs and Commercial
Banking are expected to join the team in due
course. In addition, the following Senior
Management Committees have been set up,
with specific responsibilities:
Asset Liability Committee
The Asset Liability Committee’s mandate is to
monitor the liquidity and capital adequacy of
the Group and review the Group’s long term
equity investments, and the Group’s
penetration into the different markets. The
Committee is chaired by the President & Chief
Executive and its members are Deputy Chief
Executivie and the Heads of Treasury &
Investment, Credit & Risk Management,
Strategic Planning, Operations & Administration
and a senior member from the Bahrain,
Financial Control unit, Al Amin Bank.
Head Office Credit Committee
The Head Office Credit Committee is the
authority that considers issues of Group credit
policy and Group credit exposures, problem
credits and provisioning levels. The Head
Office Credit Committee is chaired by the
President & Chief Executive and senior credit
officers appointed from among the Executive
Management, one of whom is the Head of
Credit & Risk Management.
Basel II Steering Committee
The Basel Committee on Banking Supervision
has introduced the new Capital Accord (Basel
II) to replace the 1988 Capital Accord
establishing guidelines as to the minimum
capital that banks should maintain in relation
to their risk-weighted assets. Implementation
of the new Capital Accord is due to take place
between 2007 and 2008.
The mandate of ABG’s Basel II Steering
Committee is to review the Group’s state of
readiness for compliance with Basel II, both at
the Head Office level and across the countries in
which the Group is represented, and develop a
concerted strategy towards Basel II Compliance
to achieve Groupwide risk and capital adequacy
measurement. The Committee is co-chaired by
the Heads of Credit & Risk Management and
Financial Control and membership includes
senior nominees drawn from the Head Office
and most of the Group units.
Head Office IT Steering Committee
The Committee’s role is to draw up the
Group’s short and long term IT strategy and
oversee and monitor its implementation
throughout the Group with a view to
effecting standardisation in information and
operation management. The Group has also
developed a Business Intelligence Roadmap
for a web-based financial consolidation
application and a Corporate Performance
Measurement (CPM) methodology using Key
Performance Indicators (KPI) to set
performance benchmarks for each unit and to
monitor them on a continuous basis. The
Roadmap will be further enhanced to include
elements of exposure management across the
Group, including elements of risk
management reporting, thus setting the stage
for Basel II compliance.
The Committee is chaired by the Deputy Chief
Executive with membership comprising the
Heads of Financial Control, Strategic
Planning, Operations & Administration
together with senior support nominees from
ABG and Al Baraka Islamic Bank, Bahrain.
23

Other committees
The Management forms ad-hoc committees
as and when required to address specific
initiatives that the Group engages in from
time to time.
Compliance, Policies and Procedures
Regulation
The Group complies with all the regulatory
requirements governing Islamic Banks issued
by the Central Bank of Bahrain (CBB), which
include, inter alia, regulations governing the
Group’s capital adequacy, asset quality and
risk management, liquidity and fund
management.
The CBB as the home supervisor sets and
monitors ABG’s capital requirements on both
a consolidated and an unconsolidated basis,
while the Group’s individual banking units are
directly regulated by their local banking
supervisors, who set and monitor their capital
adequacy requirements.
“The Group’s management has
in place various measures that
help monitor and control
activities of the Group
worldwide.”
24
The CBB currently requires each Bahrain-based
bank or banking group to maintain a minimum
ratio of total capital to on and off-balance sheet
risk-weighted assets of 12%, which
requirement exceeds the 8% minimum ratio
guideline of the Basel Committee on Banking
Supervision under its 1988 Capital Accord.
However, the new Capital Accord (Basel II)
announced by the Basel Committee to replace
the 1988 Accord is designed to achieve a more
sophisticated degree of risk differentiation in
establishing the amount of capital that banks
should allocate to different categories of their
credit risk exposure, in addition to including a
capital charge for operational risk and
incorporating an earlier guideline in relation to
capital charges for market risk. Regulators will
have wider discretion to increase or decrease
capital requirements for banks according to
their individual circumstances. The new rules
will also require greater transparency of
published information relating to bank risk
management. The Group aims to achieve, in
time, the required degree of sophistication in
risk assessment which will enable it to comply
with the requirements of Basel II as stipulated by
the CBB.
Anti-Money Laundering
The Group is implementing the CBB’s anti-
money laundering regulations, including the
appointment of a Group Money Laundering
Reporting Officer (MLRO) - which position is
held by the Head of Operations &
Administration - as well as overseeing
individual MLROs in each of the constituent
banks. The intention is to implement a
Groupwide overall policy for anti-money
laundering at the Head Office level, taking
into account the practice existing at the
various Group units and complying with the
CBB’s anti-money laundering regulations.
Financial Performance Monitoring
The Group’s management has in place various
measures that help monitor and control the
activities of the Group worldwide. A
comprehensive financial consolidation
procedure exists and is working effectively,
whereunder all units submit their financial data
in a format that is compatible with Islamic
Accounting Standards issued by the
Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI) and
International Financial Reporting Standards
(IFRS). These are consolidated quarterly and a
consolidated set of financial results is
produced. Additionally, units submit a monthly
return to Group headquarters providing details
of their financial performance, measured
against approved budgets.
The Group has also implemented a Corporate
Performance Management (CPM) system,
whereby financial and operational data are
collected from Group units through a web-
based mechanism, pursuant to which Key
Performance Indicators (KPI) are extracted and
measured against performance targets agreed
with the units as part of their approved
budgets. Under the system each member of
the Executive Management Team at Group
level will be provided with key macro
statistics, financial and operational, relevant
to that member’s areas of responsibility, with
middle management having access to the
information relevant to their responsibilities,
for on-line analysis and ad hoc enquiry.
Further enhancements will lead to Group
exposure monitoring and centralised risk
management reporting for Basel II and
regulatory compliance purposes.
Risk Management
The Group is committed to complying with
internationally established principles and
policies in relation to risk management. In
particular the Group fully subscribes to the
guiding principles of risk management for
Islamic financial services institutions set down
by the Islamic Financial Services Board and the
need for a comprehensive risk management
and reporting process. In this respect ABG’s
Head of Credit & Risk Management is
responsible for formulating and monitoring the
Group’s policies relating to all aspects of risk,
developing the framework for risk
measurement and coordinating the
implementation of Basel II. He is also in charge
of introducing risk measurement software,
monitoring the Group’s compliance with risk
measurement standards and providing Group
management with reports on the Group’s risk
adjusted return on capital.
The Board of Directors defines and sets the
Group’s overall levels of risk appetite, risk
diversification and asset allocation strategies
applicable to each Islamic financing instrument,
economic activity, geographical spread,
currency and tenor. Each of the Group’s units is
managed by its respective Board of Directors.
Group units follow documented credit policies
and procedures which are in the process of
being updated to reflect the new Groupwide
Albaraka Banking Group Annual Report 2006
policies and thus ensure that sound risk
management is in place in all units of the
Group, whose reporting lines are ultimately to
ABG but whose decision-making is
decentralised within the overall strategic
direction established by ABG’s Board of
Directors.
The major risks to which the Group is exposed
are Credit, Liquidity, Market (including Equity,
Rate of Return and Foreign Exchange risk),
Operational and Shari’a Compliance risks.
Credit Risk
Credit risk is the risk of loss from the failure of
a customer or counterparty to meet its
obligations in accordance with agreed terms.
It applies to the Group in its management of
the financing exposures arising out of
receivables and leases (for example,
murabaha and Ijarah) and working capital
financing transactions (Salam, Istisna’a or
mudaraba).
Each unit has in place a framework for credit
risk management that includes identification,
measurement, monitoring, reporting and
control of credit risks. Each unit controls credit
risk through the process of initial approval and
granting of credit, subsequent monitoring of
counterparty creditworthiness and the active
management of credit exposures. Authority to
approve credits is delegated by the unit’s
Board of Directors to committees entrusted
with the task of credit assessment and
evaluation, under specific credit policies and
operational procedures in place in that unit.
Each unit maintains an internal audit
department responsible for carrying out
reviews of credit exposures to counterparties
and assessing their quality and adherence to
laid down approval procedures.
Equity Investment Risk
Equity investment risk can be defined as the
risk of financial loss to the Group arising from
any of its units entering into a partnership for
the purpose of undertaking or participating in
a particular financing or general business
activity, in which the provider of finance
shares in the business risk.
Each unit has in place appropriate strategies,
risk management and reporting processes in
respect of the risk characteristics of equity
investments, including mudaraba, musharaka
and other investments. Each unit ensures that
Albaraka Banking Group Annual Report 2006
its valuation methodologies are appropriate and
consistent, and assesses the potential impact of
its methods on profit calculations and
allocations mutually agreed between that unit
and its partners. Each unit further has defined
and established appropriate exit strategies, risk
management and reporting processes in
respect of each of their equity investment
activities.
Liquidity Risk
Liquidity risk is the risk of loss to the Group
arising from its inability either to meet its
obligations or to fund increases in assets as
they fall due without incurring unacceptable
costs or losses.
Each of ABG’s units maintains liquid assets at
prudential levels to ensure that cash can
quickly be made available to honour its
obligations. Liquidity management also
recognises the impact of potential cash
outflows arising from irrevocable
commitments to fund new assets.
Profit Rate Risk or Rate of Return Risk
The Group is exposed to rate of return risk in
that an increase in general benchmark rates
may lead to investment account holders having
expectations of a higher rate of return, thus
putting units under market pressure to pay a
rate of return that exceeds the rate that has
been earned on assets financed by the
investment account holders, by waiving all or
part of their share of profits and/or fee as
Mudarib. However, the Group is not liable to
pay any predetermined returns to investment
account holders.
Currency Risk
Currency or foreign exchange rate risk is the
risk of an adverse impact on the Group’s
earnings or shareholders’ equity due to
currency rate movements. The Group is
exposed to foreign exchange rate risk in that
the value of a financial instrument, or its net
investment in its foreign units, may fluctuate
due to changes in foreign exchange rates. The
Group’s significant net foreign currency
exposures are detailed in Note 28 to the
Financial Statements.
Operational Risk
Operational risk, which includes legal risk, is
the risk of financial loss or damage resulting
from inadequate or failed internal processes,
people and systems or from external events.
“The Group is committed to
complying with internationally
established principles and
policies in relation to risk
management .”
Management of legal risk is through effective
consultation with internal and external legal
counsel. Management of other operational
risk is achieved by ensuring that trained and
competent people and appropriate
infrastructure, controls and systems are in
place to ensure the identification, assessment
and management of all substantial risks.
Apart from operations risks, which are
controlled through regular daily functions and
managed through internal procedures and
monitoring mechanisms, and business/event
risks, which include underlying, structural and
external risks that can have a material impact
on the Group such as changes in taxation,
accounting and financial management, legal
and regulatory requirements, the Group is
also exposed to risks relating to Shari’a
compliance and its fiduciary responsibilities
towards fund providers.
Fiduciary risk arises from the failure to
perform in accordance with explicit and
implicit standards applicable to an Islamic
bank’s fiduciary responsibilities, leading to
losses in investments or failure to safeguard
the interests of the investment account
holders. Group units have in place
appropriate mechanisms to safeguard the
25
interests of all fund providers. Where
investment account holders’ funds are
commingled with a Group unit’s own funds,
the respective Group unit ensures that the
bases for asset, revenue, expense and profit
allocations are established, applied and
reported in a manner consistent with the
Group’s fiduciary responsibilities.

Group policy dictates that the operational

functions of booking, recording and
monitoring of transactions are carried out by
staff independent of the staff initiating the
transactions. Group units have primary
responsibility for identifying and managing
their own operational risks. Each unit is guided
by policies, procedures, and controls that are
relevant for each function. Internal control
policies and procedures dictate the segregation
of duties, delegation of authorities, exceptions
reporting, exposures management and
reporting, and reconciliations and are based on
the submission of timely and reliable
management reporting.

The Group is taking steps to commission an

outside consultancy to design Groupwide
policies for disaster recovery and business
continuity planning.

Separate Internal Control units carry out

ongoing monitoring of day-to-day procedures
and ensure adherence to key control functions.
With the improvement in the Group’s
technology base, controls are frequently
integrated into processing systems.

Shari’a Compliance Risk

Shari’a compliance risk arises from the failure
to comply with the rules and principles of
Shari’a and is therefore akin to reputation risk.
Group units have in place systems and
controls, including their respective Shari’a
Supervisory Boards, to ensure compliance
with all Shari’a rules and principles.

Albaraka Banking Group Annual Report 2006

26
Contents

28 Unified Shari’a Supervisory Board Report

29 Auditors’ Report

30 Consolidated Balance Sheet

31 Consolidated Statement of Income

32 Consolidated Statement of Cash Flows

33 Consolidated Statement of Changes in Equity

34 Consolidated Statement of Changes in Restricted Investment Accounts

35 Consolidated Statement of Sources and Uses of Charity Fund

36 Consolidated Statement of Sources and Uses of Good Faith Qard Fund

37 Notes to the Consolidated Financial Statements

63 ABG Contact Directory

Albaraka Banking Group Annual Report 2006

27
Unified Shari’a Supervisory Board Report
Albaraka Banking Group B.S.C.
Year Ended 31 December 2006
In the name of Allah, The Beneficent, The Merciful, Praise be to Allah and peace be upon our
Prophet Mohamed, His Apostles:
To: Albaraka Banking Group Shareholders
Greetings,
In accordance with Article (58) of the Articles
of Association of AlBaraka Banking Group,
(The Group) we are required to submit the
following report:
We have reviewed the policies and
procedures applied by the Group and
reviewed the 2006 Shari’a reports issued by
the following Group Units’ Shari’a Supervisory
Boards or Shari’a Advisors:
1 AlBaraka Islamic Bank (Bahrain).
2 Al-Amin Bank
3 Jordan Islamic Bank
4 Bank Et-Tamweel Al-Tunisi Al-Saudi
5 Banque Albaraka D’Algerie
6 AlBaraka Bank Ltd (South Africa)
7 AlBaraka Bank Lebanon
8 AlBaraka Turk Participation Bank
9 The Egyptian Saudi Finance Bank
10 AlBaraka Bank Sudan
We have also reviewed the financial
statements of the above entities when
needed.
In addition, we examined the Group’s Balance
Sheet for the year ending 31/12/2006 and
Statement of Income and their notes and
obtained the necessary explanations and
clarifications on the relevant technical issues.
The Group and Units managements are
responsible for ensuring that these operate
and conduct their business in accordance
with Islamic Shari’a Principles. Our
responsibility is to express an independent
opinion based on our review of the Shari’a
reports and financial statements of the Group
and its Units.
28
The Unit’s Shari’a Supervisory Boards and
Shari’a advisors have supervised the Units’
business activities including examining on test
basis documentations and procedures applied
by the Group and its Units.
The Units’ Shari’a Supervisory Boards and
Shari’a advisors, as is clear from their reports,
planned and performed reviews so as to
obtain all the information and explanations
they considered necessary in order to provide
them with sufficient evidence to provide
reasonable assurance that the Group and its
Units have not violated Shari’a Rules and
Principles.
In our opinion:
1 The Contracts, transactions and dealings
entered into by the Group and its Units
during the year ended 31st December
2006 are made in compliance with
Shari’a Rules and Principles.
2 The allocation of profit and charging of
losses relating to investment accounts
conform to the basis that have been
approved in accordance with Shari’a
Issued on 14 Safar 1428H, corresponding to
Rules and Principles.
4 March 2007 AD.
3 All earnings realized from sources or by
Executive Committee of the Unified Shari’a
means prohibited by Islamic Shari’a Rules
and Principles have been disposed of to Supervisory Board
Charitable Causes.
4 The Group and its units are not required
to pay Zakah. This should be paid by
shareholders on their shareholdings.
Subject to the Islamic Jurisprudence
Board’s resolution, a shareholder who President Shari’a Supervisory Board
invests for the purpose of trading
Dr. Abdul Sattar Abu Ghudah
should pay Zakah on the market price of
his shares while a shareholder who
invests for the purpose of getting profits
should pay Zakah on the profits paid out
in addition to his share in the bank’s
assests on which Zakah should be paid.
Shari’a Supervisory Board’s Member
Praise be to God
Dr. Ahmed Mohyedeen
Albaraka Banking Group Annual Report 2006
Auditors’ Report to the Shareholders of
Albaraka Banking Group B.S.C.

We have audited the accompanying We confirm that, in our opinion, proper

consolidated balance sheet of Albaraka
Banking Group B.S.C. [the “Bank”] and its
subsidiaries [the “Group”] as of 31 December
2006, and the related consolidated
statements of income, cash flows, changes in
equity, restricted investment accounts,
sources and uses of charity fund and sources
and uses of good faith qard fund for the year
then ended. These consolidated financial
statements and the Bank’s undertaking to
operate in accordance with Islamic Shari’a
rules and principles are the responsibility of
the Bank’s Board of Directors. Our
responsibility is to express an opinion on these
consolidated financial statements based on
our audit.
We conducted our audit in accordance with
both the International Standards on Auditing
and Auditing Standards for Islamic Financial
Institutions. Those Standards require that we
plan and perform the audit to obtain
reasonable assurance about whether the
consolidated financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence
supporting the amounts and disclosures in the
consolidated financial statements. An audit
also includes assessing the accounting
principles used and significant estimates
made by management, as well as evaluating
the overall consolidated financial statements
presentation. We believe that our audit
provides a reasonable basis for our opinion.
accounting records have been kept by the
Bank and the consolidated financial
statements, and the contents of the Report of
the Board of Directors relating to these
consolidated financial statements, are in
agreement therewith. We further report, to
the best of our knowledge and belief, that no
violations of the Bahrain Commercial
Companies Law, nor of the Central Bank of
Bahrain and Financial Institutions Law, nor of
the memorandum and articles of association
of the Bank, have occurred during the year
ended 31 December 2006 that might have
had a material adverse effect on the business
of the Bank or on its consolidated financial
position and that the Bank has complied with
the terms of its banking licence. We obtained
all the information and explanations which
we required for the purpose of our audit.
11 March 2007
Manama, Kingdom of Bahrain

In our opinion, the consolidated financial

statements present fairly, in all material
respects, the financial position of the Group
as of 31 December 2006, the results of its
operations, its cash flows, sources and uses of
charity fund and sources and uses of good
faith qard fund for the year then ended in
accordance with the Financial Accounting
Standards issued by the Accounting and
Auditing Organization for Islamic Financial
Institutions and the Shari’a rules and
principles as determined by the Shari’a
Supervisory Board of the Group.

Albaraka Banking Group Annual Report 2006

29
Consolidated Balance Sheet
31 December 2006

2006 2005
Notes US$ 000 US$ 000

ASSETS
Cash and balances with banks 3 1,837,178 1,844,633
Sales receivables 4 4,053,726 2,986,194
Mudaraba financing 5 134,671 167,235
Musharaka financing 6 84,444 73,692
Investment properties 7 68,184 44,010
Ijarah Muntahia Bittamleek 8 211,325 170,467
Investment in associates 9 17,876 125,208
Investments 10 841,843 585,014
Ijarah receivables 11 21,096 20,279
Property and equipment 12 130,951 115,355
Other assets 13 224,533 174,987
Total assets 7,625,827 6,307,074

LIABILITIES, UNRESTRICTED INVESTMENT ACCOUNTS AND EQUITY

Liabilities
Customer current and other accounts 1,333,954 1,185,592
Due to banks 115,276 111,432
Other liabilities 14 268,107 209,792
1,717,337 1,506,816

Unrestricted Investment Accounts 15 4,697,366 4,033,125

Equity 16
Share capital 630,000 387,998
Share premium 238,890 -
Reserves 33,605 49,810
Retained earnings 43,102 111,526
Proposed dividends 33,000 17,000
Equity attributable to the shareholders of the parent 978,597 566,334
Minority interest 232,527 200,799

Total equity 1,211,124 767,133

Total liabilities, unrestricted investment accounts and equity 7,625,827 6,307,074

Saleh Abdullah Kamel Adnan Ahmed Yousif

Chairman Member of the Board and
President & Chief Executive

The attached notes 1 to 32 form part of these consolidated financial statements

Albaraka Banking Group Annual Report 2006

30
Consolidated Statement of Income
Year Ended 31 December 2006

2006 2005
Notes US$ 000 US$ 000

INCOME
Joint income from sales receivable 329,903 254,987
Net income from jointly financed contracts and investments 113,016 89,611
17 442,919 344,598

Gross return to unrestricted investment accounts 18 (373,850) (305,964)

Group’s share as a Mudarib 18 100,464 92,783
Return on unrestricted investment accounts (273,386) (213,181)

Group's share of income from jointly financing and investment accounts 169,533 131,417

Mudarib share for managing restricted investment accounts 6,628 5,970

Net income from self financed contracts and investments 17 46,283 65,864
Other fees and commission income 19 87,796 71,553
Other operating income 20 29,327 22,946
Total Operating Income 339,567 297,750

Staff expenses 91,330 74,364

Depreciation and amortisation 21 13,160 14,835
Other operating expenses 22 62,413 62,068
Total Operating Expenses 166,903 151,267

Net Income for the Year Before Monetary Loss, Provisions and Taxation 172,664 146,483

Monetary loss on a subsidiary - (4,987)

Provisions 23 (33,015) (32,230)
Net Income Before Taxation 139,649 109,266

Taxation (15,933) (6,380)

Net Income for the Year 123,716 102,886

Attributable to:
Equity shareholders of the parent 80,252 79,372
Minority interest 43,464 23,514
123,716 102,886

Basic and diluted earnings per share - US cents (Note 24) 15 16

The attached notes 1 to 32 form part of these consolidated financial statements

Albaraka Banking Group Annual Report 2006

31
Consolidated Statement of Cash Flows
Year Ended 31 December 2006

2006 2005
Notes US$ 000 US$ 000

OPERATING ACTIVITIES
Net income for the year before taxation 139,649 109,266
Adjustments for non-cash items:
Depreciation and amortisation 21 13,160 14,835
Gain on sale of property and equipment 20 (347) (4,266)
Provisions 23 33,015 32,230
Income from investment in associates 17 (226) (45,778)
(Gain)/loss on sale of investment in associates 17 (4,835) 2,289
Operating profit before changes in operating assets and liabilities 180,416 108,576

Net changes in operating assets and liabilities:

Reserves with central banks (93,969) (70,636)
Sales receivables (1,118,466) (769,180)
Mudaraba financing 32,564 (10,589)
Musharaka financing (10,753) 2,867
Investment properties 7 (4,375) 6,383
Ijarah Muntahia Bittamleek (41,859) 1,692
Ijarah receivable (4,764) (5,599)
Other assets (40,559) (8,481)
Customer current and other accounts 148,362 207,811
Due to banks and financial institutions 3,844 73,402
Other liabilities 39,053 (17,467)
Taxation paid (16,642) (6,797)
Net cash used in operating activities (927,148) (488,018)

INVESTING ACTIVITIES
Acquisition of a subsidiary, net of cash acquired 29 - 36,343
Net purchase of investments (178,079) (162,320)
Net (purchase) disposal of property and equipment (27,127) 269
Dividend received from associates 6,180 21,911
Disposal of investment in associates 16,859 11,750
Net cash used in investing activities (182,167) (92,047)

FINANCING ACTIVITIES
Proceeds from share capital issued 369,604 41,347
Equity transaction cost (10,714) -
Dividends paid (17,000) -
Increase in unrestricted investment accounts 682,197 652,286
Net changes in minority interest (8,716) 32,857
Net cash from financing activities 1,015,371 726,490

Foreign currency translation adjustments (7,480) 1,060

(Decrease) Increase in Cash and Cash Equivalents (101,424) 147,485

Cash and cash equivalents at 1 January 1,490,568 1,343,083

Cash and Cash Equivalents at 31 December 25 1,389,144 1,490,568

The attached notes 1 to 32 form part of these consolidated financial statements

Albaraka Banking Group Annual Report 2006

32
Consolidated Statement of Changes in Equity
Year Ended 31 December 2006

Attributable to equity holders of the Parent

Cumulative Investment
changes in Foreign Properties
Share Share Statutory fair value currency fair value Other Retained Proposed Minority Total
capital premium reserve reserve reserve reserve reserves earnings dividends Total interest equity
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Balance at 1 January 2006 387,998 - 14,351 9,368 23,518 - 2,573 111,526 17,000 566,334 200,799 767,133
Capitalisation (note 1) 122,002 - (14,351) - - - - (107,651) - - - -
Share capital issued for cash 120,000 249,604 - - - - - - - 369,604 - 369,604
Equity transaction
cost (note 16 a) - (10,714) - - - - - - - (10,714) - (10,714)
Net movement in cumulative
change in fair value - - - (3,517) - - - - - (3,517) 1,295 (2,222)
Net movement
in other reserves - - - - - - (1,787) - - (1,787) (1,410) (3,197)
Foreign currency translation - - - - (4,575) - - - - (4,575) (2,905) (7,480)
Net income for the year - - - - - - - 80,252 - 80,252 43,464 123,716
Transfer to statutory reserve - - 8,025 - - - - (8,025) - - - -
Dividends paid - - - - - - - - (17,000) (17,000) - (17,000)
Proposed dividends - - - - - - - (33,000) 33,000 - - -
Dividends of subsidiaries - - - - - - - - - - (2,678) (2,678)
Net movement in
minority interest - - - - - - - - - - (6,038) (6,038)

Balance at
31 December 2006 630,000 238,890 8,025 5,851 18,943 - 786 43,102 33,000 978,597 232,527 1,211,124

Balance at 1 January 2005 325,307 - 6,414 7,946 21,020 107 4,148 57,091 - 422,033 143,895 565,928
Share capital issued for cash 41,347 - - - - - - - - 41,347 - 41,347
Share capital issued in kind 21,344 - - - - - - - - 21,344 - 21,344
Acquisition of a
subsidiary (note 29) - - - - - - - - - - 2,815 2,815
Net movement in cumulative
change in fair value - - - 1,422 - (107) - - - 1,315 (738) 577
Net movement in other reserves - - - - - - (1,575) - - (1,575) (106) (1,681)
Foreign currency translation - - - - 2,498 - - - - 2,498 (1,438) 1,060
Net income for the year - - - - - - - 79,372 - 79,372 23,514 102,886
Transfer to statutory reserve - - 7,937 - - - - (7,937) - - - -
Proposed dividends - - - - - - - (17,000) 17,000 - - -
Dividends of subsidiaries - - - - - - - - - - (4,757) (4,757)
Net movement in minority interest - - - - - - - - - - 37,614 37,614

Balance at
31 December 2005 387,998 - 14,351 9,368 23,518 - 2,573 111,526 17,000 566,334 200,799 767,133

Note: Net movement in minority interest includes the effect of changes in capital of subsidiaries.

The attached notes 1 to 32 form part of these consolidated financial statements

Albaraka Banking Group Annual Report 2006

33
Consolidated Statement of Changes in Restricted Investment Accounts
Year Ended 31 December 2006

Sales Mudaraba Musharaka Investment

receivable financing financing Properties Others Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Balance at 1 January 2005 198,879 5,554 20,961 20,305 68,388 314,087

Deposits 287,304 - 2,732 3,234 250,992 544,262

Withdrawals (259,023) (4,145) (20,961) (14,932) (193,110) (492,171)

Income net of expenses 23,661 104 - 4,012 18,606 46,383

Mudarib’s share (1,975) (13) - (326) (3,656) (5,970)

Balance at 31December 2005 248,846 1,500 2,732 12,293 141,220 406,591

Deposits 301,363 132,358 - 9,122 60,175 503,018

Withdrawals (227,688) (51,895) (1,592) (11,385) (100,467) (393,027)

Income net of expenses 18,976 1,961 15 6,212 616 27,780

Mudarib’s share (4,246) (287) (15) (1,864) (216) (6,628)

Balance at 31December 2006 337,251 83,637 1,140 14,378 101,328 537,734

Restricted Investment Accounts

Restricted investment accounts represent funds received by the Group from third parties for investment in specified products as directed by the
investment account holders. These assets are managed in a fiduciary capacity and the Group has no entitlement to these assets. Clients bear all of
the risks and earn all of the rewards on these investments. Restricted investments are not included in the consolidated balance sheet since the Group
does not have the right to use or dispose these investments except within the conditions of the contract between the Group and holders of restricted
investment accounts.

The attached notes 1 to 32 form part of these consolidated financial statements

Albaraka Banking Group Annual Report 2006

34
Consolidated Statement of Sources and Uses of Charity Fund
Year Ended 31 December 2006

2006 2005
Note US$ 000 US$ 000

SOURCES OF CHARITY FUND:

Contribution by the Group 479 -
Non-Islamic income * 8,776 2,603
Others 136 415

Total sources 9,391 3,018

USES OF CHARITY FUND

Charitable contributions * 6,350 1,352
Others 625 881

Total uses 6,975 2,233

Net increase of sources over uses 2,416 785

Balance of charity fund at beginning of the year 2,553 1,768

Balance of charity fund at end of the year 14 4,969 2,553

* Non-Islamic income includes US$ 6.5 million representing interest earned by Albaraka Turk Participation Bank during the year on the mandatory
reserve placed with their local Central Bank. An amount of US$ 4.7 million out of this interest has been used in various charitable contributions and
the remaining balance has been carried forward to be used as charitable contributions in the coming years.

The attached notes 1 to 32 form part of these consolidated financial statements

Albaraka Banking Group Annual Report 2006

35
Consolidated Statement of Sources and Uses of Good Faith Qard Fund
Year Ended 31 December 2006

2006 2005
Notes US$ 000 US$ 000

SOURCES OF QARD FUND

Contribution by the Group 10,794 13,389
Others 831 587

Total Sources 11,625 13,976

USES OF QARD FUND

Marriage 1,078 739

Medical treatment 894 482
Education 1,124 2,108
Advances to staff 1,977 1,390
Settlement of current accounts 3,354 5,637
Others 3,198 3,620

Total uses 11,625 13,976

Balance of Good Faith Qard fund at beginning of the year 8,622 6,725
Advances granted during the year 11,625 13,976
Advances settled during the year (10,609) (12,079)

Balance of Good Faith Qard fund at end of the year 13 9,638 8,622

The attached notes 1 to 32 form part of these consolidated financial statements

Albaraka Banking Group Annual Report 2006

36
Notes to the Consolidated Financial Statements
31 December 2006

1 ACTIVITIES
Albaraka Banking Group B.S.C. (the "Bank") is a joint stock company incorporated in the Kingdom of Bahrain on 27 June 2002, under Commercial
Registration (CR) number 48915. The Bank is engaged in banking activities in the Middle East, Europe and North African and South African region.
The address of the Bank's registered office is P.O. Box 1882, Diplomatic Area, Manama, Kingdom of Bahrain. The Bank is listed on Bahrain Stock
Exchange and Dubai International Financial Exchange.

During the year 2006, the Bank has filed an application with Central Bank of Bahrain to obtain wholesale banking license. This regulatory approval
is still awaited.

The principal activities of the Bank and its subsidiaries (the "Group") comprise of international and commercial banking, financing, treasury and
investment activities. The Bank is supervised and regulated by the Central Bank of Bahrain. As of 31 December 2006, the total number of employees
employed by the Group was 5,435 (2005: 4,846).

The extra-ordinary meeting No. (5) dated 20 March 2006 approved the capitalization of US$ 14.4 million of the statutory reserve and an amount of
US$ 107.7 million of the retained earnings. As a result, the share capital increased to US$ 510 million. In the same extra-ordinary meeting, the Group
was converted from a closed joint stock company to a public joint stock company. In addition, the Bank issued 120 million new shares through an
initial public offering of US$ 3.08 per share including a premium of US$ 2.08 per share. This resulted in an increase in share capital to US$ 630 million.

2 SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below:

a. Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for investment properties, trading and available-
for-sale investments that have been measured at fair value. The consolidated financial statements are presented in United States Dollars, and
all values are rounded to the nearest U.S Dollar thousands.

b. Statement of Compliance
The consolidated financial statements are prepared in accordance with the Financial Accounting Standards issued by the Accounting and
Islamic Financial Institutions (the "AAOIFI"), the Shari’a Rules and Principles as determined by the Shari’a Supervisory Board of the Group and
the Bahrain Commercial Companies Law. For matters which are not covered by AAOIFI standards, the Group uses the International Financial
Reporting Standards (the "IFRSs").

c. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at and for the year ended 31
December each year. The financial statements of the subsidiaries are prepared for the same reporting year as the Bank, using consistent
accounting policies.

All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be
consolidated until the date that control ceases. Control is achieved where the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.

Minority share in a subsidiary’s net assets is reported as a separate item in the Group’s entity. In the consolidated income statement, minority
share is included in net profit.

Minority interests consist of the amount of those interests at the date of the original business combination and the minorities share of changes
in equity since the date of combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are
allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional
investment to cover the losses.

Transactions with minority interests are handled in the same way as transactions with external parties. Sale of participations to minority interests
results in a gain or loss that is recognised in the consolidated income statement. Acquisition of minority shares can result in goodwill if the cost
exceeds the carrying amount of the acquired net assets.

Albaraka Banking Group Annual Report 2006

37
Notes to the Consolidated Financial Statements
31 December 2006

2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

c. Basis of consolidation continued
The following are the principal subsidiaries of the Bank, which are consolidated in these financial statements:

Ownership Ownership Year of Country of

Bank for 2006 for 2005 incorporation incorporation

Held directly by the Bank

Banque Albaraka D’Algerie 55.9% 50.0% 1991 Algeria
Albaraka Islamic Bank 78.3% 78.3% 1984 Bahrain
Bank Et-Tamweel Al-Tunisi Al-Saudi 78.4% 78.4% 1983 Tunisia
Egyptian Saudi Finance Bank 73.7% 46.6% 1980 Egypt
Albaraka Bank Lebanon 96.3% 81.8% 1991 Lebanon
Jordan Islamic Bank 55.5% 53.7% 1978 Jordan
Al Amin Bank 100.0% 100.0% 1987 Bahrain
Albaraka Turk Participation Bank 67.8% 67.7% 1985 Turkey
Albaraka Bank Limited 51.7% 22.5% 1989 South Africa
Albaraka Bank Sudan 86.2% 87.8% 1984 Sudan

Effective Effective
Ownership Ownership Year of Country of
Company for 2006 for 2005 incorporation incorporation

Held through subsidiaries

Al- Rizq Trading Company ** 50.0% 48.3% 1994 Jordan
Al-Omariya School Company** 52.4% 50.6% 1987 Jordan
Al-Samaha Real Estate Company** 52.7% 51.0% 1998 Jordan
Future Applied Computer
Technology Company** 55.4% 53.6% 1998 Jordan
Dar AlBaraka 55.9% 50.0% 2003 Algeria
AlBaraka Properties (Pty) Ltd. 51.7% 22.5% 1991 South Africa

** Owned indirectly through Jordan Islamic Bank.

Dar AlBaraka and AlBaraka Properties (Pty) Ltd. are indirectly owned through Banque Albaraka D’Algerie and AlBaraka Bank

d. Cash and cash equivalents

Cash and cash equivalents as referred to in the consolidated statement of cash flows comprise cash on hand, balance with central bank and
amounts due from banks on demand or with an original maturity of three months or less.

e. Sales receivables
Sales receivables consist mainly of sales transaction agreements, murabaha and international commodities stated net of deferred profits and
provisions for impairment.

f. Mudaraba financing
Mudaraba financing is stated at cost less provision for impairment.

g. Musharaka financing
Musharaka financing (in which the partner’s share in capital remains constant) is accounted for at cost less provision for impairment.

h. Investment properties
All properties held for rental or for capital appreciation purposes, or both, are classified as investment properties. These are initially recognised
at cost and subsequently re-measured at fair value with the resulting unrealised gains being recognised in the consolidated statement of
changes in equity under investment properties fair value reserves. Unrealised losses are recognised in equity to the extent of the available
balance, taking into consideration the portion related to owners' equity and equity of unrestricted investment account holders. In case
cumulative losses exceed the available balance under equity, the excess is recognised in the consolidated statement of income under unrealised
re-measurement losses on investments.

Albaraka Banking Group Annual Report 2006

38
Notes to the Consolidated Financial Statements
31 December 2006

2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

i. Ijara Muntahia Bittamleek
Ijarah Muntahia Bittamleek are accounted for at cost and are depreciated according to the Group’s depreciation policy for property and
equipment or lease term, whichever is lower.

j. Investment in Associates
The Group’s investment in its associates is accounted for under the equity method of accounting. An associate is an entity in which the Group
has significant influences and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is
carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an
associate is included in the carrying amount of the investment and is not amortised. The consolidated income statement reflects the Group’s
share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group
recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised profits and
losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The reporting dates of the associates and the Group are identical and the associates accounting policies conform to those used by the Group
for like transactions and events in similar circumstances.

k. Investments
Trading securities
These are initially recognised at cost and subsequently re-measured at fair value. All related realised and unrealised gains or losses are included
in the consolidated income statement.

Non-trading investments
Theses are classified as follows:

- Available-for-sale
- Held-to-maturity

All investments are initially recognised at cost, being the fair value of the consideration given including acquisition costs.

Available-for-sale
Subsequent to acquisition, available for sale investments are re-measured at fair value. The cumulative gain on fair values (net of any losses) is
reflected proportionately in owners' equity and unrestricted investment accounts. Cumulative losses are reflected in the consolidated statement
of income.

In case there are unrealised losses that have been recognised in the consolidated statement of income in a previous financial period, the
unrealised gains related to the current period are recognised to the extent of previous losses recognised in the consolidated statement of
income. Any excess of such gains over such prior period losses is added to the cumulative changes in fair value in the consolidated statement
of changes in equity.

On disposal, the cumulative gains previously recognised in equity is recognised in the consolidated statement of income.

Held -to-maturity
Investments which have fixed or determinable payments, and where the Group has both the intent and ability to hold to maturity are classified
as held to-maturity. Such investments are carried at amortised cost, less provision for impairment in value. Amortised cost is calculated by
taking into account any premium or discount on acquisition. Any gain or loss on such investment is recognised in the consolidated income
statement, when the investment is de-recognised or impaired.

l. Property and equipment

Property and equipment are initially recognised at cost. The cost of additions and major improvements are capitalised; maintenance and repairs
are charged to the consolidated income statement as incurred. Gains or losses on disposal are reflected in other operating income. Depreciation
is provided on the straight-line basis over the estimated useful lives of the assets other than freehold land, which is deemed to have an indefinite
life.

Albaraka Banking Group Annual Report 2006

39
Notes to the Consolidated Financial Statements
31 December 2006

2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

l. Property and equipment continued
The calculation of depreciation is on the following basis:

Buildings 30 years
Office furniture and equipment 4 - 10 years
Vehicles 3 years
Leased buildings 4 - 10 years
Others 4 - 5 years

m. Unrestricted Investment Accounts

All unrestricted investment accounts are carried at cost plus accrued profit and related reserves. Profit equalisation reserves and investment risk
reserves are made at the Bank or subsidiary level. Profit equalisation reserves are amounts appropriated out of the Mudaraba income, before
llocating the mudarib share, in order to maintain a certain level of return on investments for investment account holders. Investment risk
reserves are amounts appropriated out of the income of investment account holders, after allocating the mudarib share, in order to cater
against future losses for investment account holders and is included under unrestricted investment account holders.

n. Taxation
There is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign operations is provided in accordance with the fiscal
regulations of the respective countries in which the subsidiaries operate. The Group accounts for its share of associates profit after accounting
for corporate taxation. Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between
the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

o. Fair values
For investments actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices.

For investment where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to the current market
value of another instrument, which is substantially the same or is based on the assessment of future cash flows. The cash equivalent values are
determined by the Group at current profit rates for contracts with similar term and risk characteristics.

For sales receivables the fair value is determined at Bank or subsidiary level at the end of the financial period at their cash equivalent value.

p. Shari’a Supervisory Board

The Group's business activities are subject to the supervision of a Shari'a supervisory board consisting of five members appointed by the general
assembly.

q. Zakah
The responsibility of payment of zakah is on individual shareholders of the Group, its unrestricted investment account holders and other account
holders except for few subsidiaries where the responsibility of payment of zakah is on the individual subsidiary as a single entity.

r. Earnings prohibited by Shari’a

The Group is committed to avoid recognising any income generated from non-Islamic source. Accordingly, all non-Islamic income is credited to
a charity account where the Group uses these funds for various social welfare activities. The movements in these funds is shown in statement
of sources and uses of charity fund.

s. Revenue recognition
Sales receivables
Profit from sales receivables is recognised when the income is both contractually determinable and quantifiable at the commencement of the
transaction. Such income is recognised on time-apportioned basis over the period of the transaction. Where the income from a contract is not
contractually determinable or quantifiable, it is recognised when the realisation is reasonably certain or when actually realised. Income that is
overdue on non-performing accounts is excluded from income.

Mudaraba financing
Income is recognised when it is quantifiable or on distribution by the mudarib, whereas any losses are charged to income on their declaration
by the mudarib.

Albaraka Banking Group Annual Report 2006

40
Notes to the Consolidated Financial Statements
31 December 2006

2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

s. Revenue recognition continued
Musharaka financing
Income is recognised on the due dates of the installments or when received in case of sale musharaka. Income that is overdue on non-
performing accounts is excluded from income.

Fee income
Fee and commission income is recognised when earned.

Ijarah Muntahia Bittamleek

Ijarah income and income from Ijarah Muntahia Bittamleek are recognised on a time-apportioned basis over the Ijara term.

Other income
Other income on investments is recognised when the right to receive payment is established.

Group’s share as a Mudarib

The Group’s share of profit as a Mudarib for managing unrestricted investment accounts is based on the terms and conditions of related
mudarib agreements.

Mudarib’s share of restricted investment

The Group shares profit for managing restricted investment accounts based on the terms and conditions of related contracts.

t. Return on Unrestricted Investment Accounts

Unrestricted investment accounts holders’ share of income is calculated based on the applicable local laws and based on the underlining
individual mudaraba contract. It represents the income generated from joint investment accounts and after deducting other expenses. Other
expenses include all expenses incurred by the Group including specific provisions. The Group's share is deducted before distributing such income.

The Group deducts an amount in excess of the profit to be distributed to unrestricted investment accounts after taking into consideration the
mudarib share of income.

u. Joint and Self Financed

Investments, financing and receivables that are jointly owned by the Group and the unrestricted investment accounts holders are classified
under the caption "jointly financed" in the consolidated financial statements. Investments, financing and receivables that are financed solely
by the Group are classified under "self financed".

v. Impairment of Financial Assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset or a group
of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment
loss, based on the assessment by the Group of the estimated cash equivalent value, is recognised in the consolidated income statement. Specific
provisions are created to reduce all impaired financial contracts to their realisable cash equivalent value. Financial assets are written off only in
circumstances where effectively all possible means of recovery have been exhausted.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment value was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognised in the consolidated income statement.

In addition the Group maintains a general provision to reflect a potential loss that may occur as a result of currently unidentifiable risks in
relation to receivables, financings or investment assets. The amount reflects estimated losses affecting these assets attributable to events that
have already occurred at the date of the financial statements, and not estimated losses attributable to future events.

w. Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the consolidated balance sheet when there is a legally
enforceable right to set off the recognised amounts and the Group intends to either settle on a net basis, or to realise the asset and settle the
liability simultaneously.

Albaraka Banking Group Annual Report 2006

41
Notes to the Consolidated Financial Statements
31 December 2006

2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

x. Employees’ End of Service Benefits
The Group provides for end of service benefits to its employees. Entitlement to these benefits is based upon the employees' length of service and
the completion of a minimum service period. The expected costs of these benefits are accrued for over the period of employment.

y. Provisions
Provisions are recognised when there is a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation
are both probable and able to be reliably measured.

z. Foreign Currencies
Foreign currency transactions at the entry level
Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. The monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to income
statement at the entity level.

Foreign currency transactions

As at the reporting date, the assets and liabilities of foreign currencies are translated into the presentation currency of the Group (US$) at the
rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the
year. The exchange differences arising on the translation are taken directly to a separate component of equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign entity is recognised in
the consolidated income statement.

aa. Monetary Loss

This represented the purchasing power loss from the application of hyperinflationary accounting standard by a subsidiary (Albaraka Türk
Participation Bank ) for differences between monetary assets and monetary liabilities. IAS 29 requires that financial statements prepared in the
currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date. From 2006 Turkey is no
longer considered a hyperinflationary economy.

bb. Judgments
In the process of applying the Group's accounting policies, management has made the following judgments, apart from those involving
estimations, which effects the amounts recognised in the financial statements:

Classification of investments
Management decides on acquisition of an investment whether it should be classified as trading, held to maturity or available for sale.

cc. Use of Estimates in Preparation of the Consolidated Financial Statements

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of financial assets and liabilities at the date of the consolidated financial statements. The use of estimates is used primarily to the
determination of provisions for sales receivable, mudaraba financing, musharaka financing, non-trading investments, ijarah receivable and other
assets.

dd. Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group's
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost
less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the cash-generating
units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable
amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

Albaraka Banking Group Annual Report 2006

42
Notes to the Consolidated Financial Statements
31 December 2006

2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

ee. Collateral Pending Sale
Collateral acquired in settlement of certain financing facilities is stated at the lower of the net realisable value of the related financing facilities
and the current fair value of such assets. Gains or losses on disposal, and revaluation losses, are recognised in the consolidated income statement.

ff. Derecognition
A financial asset (or, where applicable a part of a financial asset or part of a Group of similar financial assets) is derecognised when:

(i) the right to receive cash flows from the asset have expired;

(ii) the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay
to a third party under a 'pass through' arrangement; or

(iii) The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and
rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control
of the asset.

A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired.

gg. Intangible Assets

Intangible assets comprise principally the value of computer software. Intangible assets acquired are measured on initial recognition at cost.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

hh. Dividends
Dividends to shareholders are recognised as liabilities in the period in which they are declared.

3 CASH AND BALANCES WITH BANKS

2006 2005
US$ 000 US$ 000

Balances with central banks* 1,188,785 1,156,742

Balances with other banks 507,423 587,048
Cash and cash in transit 140,970 100,843
1,837,178 1,844,633

* Balance with the central banks include mandatory reserve and are not available for use in the Group’s day-to-day operations for US$ 448 million
(2005: US$ 354 million).

4 SALES RECEIVABLES
2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

International commodities murabahas 119,582 587,443 707,025 - 278,650 278,650

Other murabahas 326,360 3,345,202 3,671,562 122,554 2,867,814 2,990,368

Gross sales receivables 445,942 3,932,645 4,378,587 122,554 3,146,464 3,269,018

Provisions (note 23) (7,050) (146,730) (153,780) (1,872) (143,615) (145,487)
438,892 3,785,915 4,224,807 120,682 3,002,849 3,123,531
Deferred profits (2,383) (168,698) (171,081) (624) (136,713) (137,337)

Net sales receivables 436,509 3,617,217 4,053,726 120,058 2,866,136 2,986,194

Sales receivables, which are non-performing as of 31 December 2006, amounted to US$ 357.1million (2005: US$ 312.4 million).

The Group considers the promise made in the murabaha (sales receivable) to the purchase order as obligatory.

Albaraka Banking Group Annual Report 2006

43
Notes to the Consolidated Financial Statements
31 December 2006

5 MUDARABA FINANCING

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Gross amount 6,420 128,812 135,232 9,693 158,185 167,878

Provisions (note 23) - (561) (561) - (643) (643)

6,420 128,251 134,671 9,693 157,542 167,235

Mudaraba financing, which are non-performing as of 31 December 2006, amounted to US$ 0.6 million (2005: 0.6 million).

6 MUSHARAKA FINANCING

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Gross amount 4,480 81,224 85,704 3,706 71,088 74,794

Provisions (note 23) (115) (1,145) (1,260) (115) (987) (1,102)

4,365 80,079 84,444 3,591 70,101 73,692

Musharaka financing, which are non performing as of 31 December 2006, amounted to US$ 2.2 million (2005: US$ 0.9 million).

7 INVESTMENT PROPERTIES

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost 1,382 42,752 44,134 1,383 38,376 39,759

Accumulated fair value adjustments - 24,050 24,050 - 4,251 4,251

1,382 66,802 68,184 1,383 42,627 44,010

The movement is as follows:

2006 2005
US$ 000 US$ 000

At 1 January 44,010 46,279

Change in fair values attributable to unrestricted investment accounts 19,799 4,114
Acquisition net of disposal 4,375 (6,383)

68,184 44,010

Albaraka Banking Group Annual Report 2006

44
Notes to the Consolidated Financial Statements
31 December 2006

7 INVESTMENT PROPERTIES CONTINUED

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Land - 32,920 32,920 305 12,277 12,582

Buildings 1,382 33,882 35,264 1,078 30,350 31,428

1,382 66,802 68,184 1,383 42,627 44,010

8 IJARAH MUNTAHIA BITTAMLEEK

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost:
1 January 17,114 255,629 272,743 7,412 224,439 231,851
Additions 14,819 148,652 163,471 10,235 99,720 109,955
Disposals (3,761) (108,878) (112,639) (533) (68,530) (69,063)
31 December 28,172 295,403 323,575 17,114 255,629 272,743

Accumulated depreciation:
1 January 8,721 93,555 102,276 4,007 55,685 59,692
Additions 5,053 100,815 105,868 4,714 90,742 95,456
Disposals (3,607) (92,287) (95,894) - (52,872) (52,872)
31 December 10,167 102,083 112,250 8,721 93,555 102,276

Net book value:

At 31 December 18,005 193,320 211,325 8,393 162,074 170,467

Properties Equipment Others 2006

US$ 000 US$ 000 US$ 000 US$ 000

Cost:
At 1 January 72,343 186,157 14,243 272,743
Additions 36,615 102,009 24,847 163,471
Disposals (31,898) (66,571) (14,170) (112,639)
At 31 December 77,060 221,595 24,920 323,575

Depreciation:
At 1 January 25,581 73,294 3,401 102,276
Provided during the year 21,575 81,451 2,842 105,868
Disposals (27,328) (67,149) (1,417) (95,894)
At 31 December 19,828 87,596 4,826 112,250

Net book value:

At 31 December 2006 57,232 133,999 20,094 211,325

Net book value:

At 31 December 2005 46,762 112,863 10,842 170,467

Albaraka Banking Group Annual Report 2006

45
Notes to the Consolidated Financial Statements
31 December 2006

9 INVESTMENT IN ASSOCIATES
Investments in associates comprise the following:
2006
Ownership Country of Self Jointly Market
% incorporation financed financed Total Value
2006 US$ 000 US$ 000 US$ 000 US$ 000

Quoted

Investment Banking
AlAmin Investment Company 32.2 Jordan - 6,727 6,727 5,890

Insurance
Islamic Insurance Company 35.3 Jordan - 5,177 5,177 6,130

Others
Jordan Centre for International Trade Company 40.8 Jordan - 2,447 2,447 2,348

- 14,351 14,351 14,368

Unquoted

Real Estate
Baraka Development Immobile 20.0 Algeria 924 - 924
Egyptian Saudi Finance Real Estate 40.0 Egypt - 396 396

Leasing
BEST Lease 34.8 Tunis 1,380 - 1,380

Insurance
Aman Takaful Insurance (note 9.1) 38.7 Lebanon 825 - 825

3,129 396 3,525

3,129 14,747 17,876

Albaraka Banking Group Annual Report 2006

46
Notes to the Consolidated Financial Statements
31 December 2006

9 INVESTMENT IN ASSOCIATES CONTINUED

2005
Ownership Country of Self Jointly Market
% incorporation financed financed Total Value
2005 US$ 000 US$ 000 US$ 000 US$ 000

Quoted

Real Estate
Real Estate Investment Company (note 9.3) 25.0 Jordan - 3,007 3,007 4,972

Investment Banking
AlAmin Investment Company 32.2 Jordan - 6,493 6,493 16,824

Insurance
Islamic Insurance Company 35.3 Jordan - 2,291 2,291 5,713

Others
Jordan Centre for International Trade Company 40.8 Jordan - 2,361 2,361 3,013

- 14,152 14,152 30,522

Unquoted

Real Estate
Baraka Development Immobile 20.0 Algeria 924 - 924
Egyptian Saudi Finance Real Estate 40.0 Egypt - 435 435

Leasing
BEST Lease 34.8 Tunis 2,130 - 2,130

Investment Banking
Al Tawfeek Company for Cayman
Investment Funds Limited (note 9.2) 13.6 Islands 92,520 - 92,520

Insurance
BEST Reinsurance (note 9.3) 21.8 Tunis 15,047 - 15,047

110,621 435 111,056

110,621 14,587 125,208

9.1 Aman Takaful Insurance

During the year Albaraka Bank Lebanon's share in Aman Takaful Insurance has been diluted from 70% to 38.7% due to injection of additional
capital by other shareholders. Accordingly the carrying amount of the investment in Aman Takaful Insurance at the date the Bank ceases to
have control has been accounted for as an investment in associate in accordance with the requirements of International Accounting Standard 28.

9.2 Al Tawfeeq Company for Investment Funds Limited

During the year the Group lost significant influence over the operations of Al Tawfeek Company for Investment Funds Limited and has
discontinued the use of equity method from the date that it ceased to have significant influence The carrying amount of the investment at the
date it ceased to be an associate is regarded as its cost on initial measurement as a financial assets in accordance with Financial Accounting
Standard 17 ‘Investments’ and is now disclosed under nontrading investments (note 10).

An amount of US$ 72.2 million of Al Tawfeeq Company for Investment Funds Limited included under non-trading investments (note 10).

9.3 Real Estate Investment Company and B.E.S.T. Reinsurance

These were sold during the year and a gain of US$ 4.8 million recognised in consolidated statement of income ( note 17).

Albaraka Banking Group Annual Report 2006

47
Notes to the Consolidated Financial Statements
31 December 2006

10 INVESTMENTS
i) Trading securities

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Quoted equities 1,666 2,133 3,799 1,606 1,065 2,671

Non-Trading Investments
ii) Available for sale investments

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Quoted investments
Managed funds 4,128 37,101 41,229 2,766 19,157 21,923
Equities 3,339 41,313 44,652 4,459 49,558 54,017
7,467 78,414 85,881 7,225 68,715 75,940

Unquoted investments at cost

Managed funds 802 18,637 19,439 - 15,447 15,447
Equities 95,040 12,080 107,120 31,049 27,102 58,151
95,842 30,717 126,559 31,049 42,549 73,598

Provisions (note 23) (4,305) (284) (4,589) (4,846) (1,089) (5,935)

99,004 108,847 207,851 33,428 110,175 143,603

iii) Held to maturity investments

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Unquoted Investments at cost

Sukook and similar items 7,160 623,033 630,193 11,193 427,547 438,740

107,830 734,013 841,843 46,227 538,787 585,014

11 IJARAH RECEIVABLES

2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Gross amount 3,708 20,716 24,424 5,498 15,865 21,363

Provisions (note 23) (2,983) (345) (3,328) (1,043) (41) (1,084)

725 20,371 21,096 4,455 15,824 20,279

Ijarah receivables, which are non-performing as of 31 December 2006, amounted to US$ 2.8 million (2005: nil).

Albaraka Banking Group Annual Report 2006

48
Notes to the Consolidated Financial Statements
31 December 2006

12 PROPERTY AND EQUIPMENT

Land and Office furniture

buildings and equipment Vehicles Others Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost:
At 1 January 2006 116,789 73,125 6,717 7,347 203,978
Additions 9,516 11,936 2,312 3,019 26,783
Disposals (435) (885) (647) (116) (2,083)
Transfers/others (4,569) 3,960 1,068 (510) (51)
At 31 December 2006 121,301 88,136 9,450 9,740 228,627

Depreciation:
At 1 January 2006 28,457 52,050 4,216 3,900 88,623
Provided during the year 3,041 6,714 1,257 866 11,878
Disposals (9) (784) (612) (2) (1,407)
Transfers/others (3,157) 1,726 526 (513) (1,418)
At 31 December 2006 28,332 59,706 5,387 4,251 97,676

Net book values:

At 31 December 2006 92,969 28,430 4,063 5,489 130,951

At 31 December 2005 88,332 21,075 2,501 3,447 115,355

13 OTHER ASSETS

2006 2005
US$ 000 US$ 000

Goodwill 13(a) 47,227 40,000

Receivables 92,541 56,101
Collateral pending sale 25,859 26,098
Deferred taxation 11,501 10,792
Good Faith Qard Fund 9,638 8,622
Istisna financing 12,013 6,585
Intangible assets 4,199 4,420
Others 30,601 25,434

Total 233,579 178,052

Provisions (note 23) (9,046) (3,065)

224,533 174,987

13(a) Goodwill

2006 2005
US$ 000 US$ 000

Cost:
At 1 January 40,000 40,000
Additions 7,227 -

At 31 December 47,227 40,000

Albaraka Banking Group Annual Report 2006

49
Notes to the Consolidated Financial Statements
31 December 2006

13 OTHER ASSETS CONTINUED

13(a) Goodwill continued
Goodwill acquired through business combinations with indefinite lives have been allocated to three individual cash-generating units. The carrying
amount of goodwill allocated to each of the cash-generating units is as follows:

2006 2005
US$ 000 US$ 000

Albaraka Turk Participation Bank 40,000 40,000

Egyptian Saudi Finance Bank 5,044 -
Jordan Islamic Bank 2,183 -

47,227 40,000

14 OTHER LIABILITIES

2006 2005
US$ 000 US$ 000

Cash margins 59,819 45,425

Payables 120,858 98,486
Other provisions (note 23) 10,600 6,473
Current taxation* 12,474 9,598
Deffered taxation* 9,880 5,910
Accrued expenses 14,258 15,044
Charity fund 4,969 2,553
Others 35,249 26,303

268,107 209,792

*In view of the operations of the Group being subject to various tax jurisdiction and regulations, it is not practical to provide a reconciliation between
the accounting and taxable profits together with the details of effective tax rates.

15 UNRESTRICTED INVESTMENT ACCOUNT

2006 2005
US$ 000 US$ 000

Unrestricted investment accounts 4,629,422 3,986,725

Profit equalisation and investment risk reserve (note 15.1) 43,660 39,025
Cumulative changes in fair value attributable to unrestricted investment accounts 24,284 7,375

4,697,366 4,033,125

15.1 Movement in profit equalization and investment risk reserve

2006 2005
US$ 000 US$ 000

Balance at 1 January 39,025 27,591

Amount appropriated from provision (Note 23) 4,363 10,333
Amount apportioned from income allocable to unrestricted investment account holders 272 1,101

Balance at 31 December 43,660 39,025

Albaraka Banking Group Annual Report 2006

50
Notes to the Consolidated Financial Statements
31 December 2006

16 EQUITY

2006 2005
US$ 000 US$ 000

Share capital
Authorised 1,500,000,000 ordinary shares of US$ 1 each 1,500,000 1,500,000

2006 2005
US$ 000 US$ 000

Issued and fully paid up

At beginning of the year

387,998,025 (2005: 325,307,211) ordinary shares of US$1 each 387,998 325,307

Issued during the period

120,000,000 (2005: 41,346,610) ordinary shares of US$1 each, issued in cash 120,000 41,347
(2005: 21,344,204) ordinary shares of US$1 each, issued in kind - 21,344

Capitalization of retained earnings & statutory reserve

122,001,975 (2005: nil) ordinary shares of US$1 each 122,002 -

At end of the period

630,000,000 (2005: 387,998,025) ordinary shares of US$1 each 630,000 387,998

Additional information on shareholding pattern:

i) Names and nationalities of the major shareholders and the number of shares in which they have an interest of 5% or more of outstanding shares:

Names Nationality shares % holding

Saleh Abdulla Kamel Saudi 189,695,984 30.11%

Dallah AlBaraka Holding Company E.C. Bahraini 155,206,214 24.64%
Altawfeek Company For Investment Funds Cayman Island 131,052,187 20.80%
Abdulla AbdulAziz AlRajihi Saudi 42,894,396 6.81%

ii) The Bank has only one class of shares and the holders of these shares have equal voting rights.

iii) Distribution schedule of shares, setting out the number of holders and percentage in the following categories:

% of total
No. of No. of outstanding
Categories: shares shareholders shares

Less than 1% 31,540,559 1,586 5.00%

1% up to less than 5% 79,610,660 9 12.64%
5% up to less than 10% 42,894,396 1 6.81%
20% up to less than 50% 475,954,385 3 75.55%

630,000,000 1,599 100.00%

Albaraka Banking Group Annual Report 2006

51
Notes to the Consolidated Financial Statements
31 December 2006

16 EQUITY CONTINUED
Share premium
Amounts collected in excess of the par value of the issued share capital during any new issue of shares, net of issue costs, are treated as share
premium. This amount is not available for distribution, but can be utilised as stipulated in the Bahrain Commercial Companies Law. Share premium
from issue of shares during the year amounted to US$249.6 million (2005: Nil).

Statutory reserve
In accordance with the Bahrain Commercial Companies Law and the Bank’s articles of association, 10% of the net income for the year is transferred
to the statutory reserve until such time as the reserve reaches 50% of the Bank’s paid-up share capital.

Cumulative changes in fair values

This represents the net unrealised gains on available-for-sale investments.

Foreign currency reserve

The foreign currency reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Investment properties fair value reserves

This represents the net unrealised gain on revaluation of investment properties. This reserve is transferred to the consolidated statement of income
upon sale of the investment properties.

Other reserves
Other reserves mainly consist of general banking risk reserves maintained by the subsidiaries in accordance with local regulations.

16 (a) Equity transaction cost

Equity transaction cost, represent costs incurred by the Bank that are directly related to raising capital and have been taken to the consolidated
statement of equity and have been incurred in cash.

17 NET INCOME FROM JOINTLY AND SELF FINANCED CONTRACTS AND INVESTMENTS

2006 2005
US$ 000 US$ 000

Income from sales contracts 365,505 268,942

Ijarah Muntahia Bittamleek (note 17.1) 18,808 13,639
Income from non-trading investments 60,964 54,031
Income from associates 226 45,778
Gain/(loss) from sale of associates 4,835 (2,289)
Mudaraba financing 15,953 11,020
Income from Musharaka 6,739 5,849
Income from investment properties 2,330 1,544
Trading securities (225) 1,031
Others 14,067 10,917

489,202 410,462

Net income from jointly financed contracts and investments 442,919 344,598
Net income from self financed contracts and investments 46,283 65,864

489,202 410,462

Albaraka Banking Group Annual Report 2006

52
Notes to the Consolidated Financial Statements
31 December 2006

17 NET INCOME FROM JOINTLY AND SELF FINANCED CONTRACTS AND INVESTMENTS CONTINUED
17.1 Ijara Muntahia Bittamleek

2006 2005
US$ 000 US$ 000

Income from Ijara Muntahia Bittamleek 124,676 109,095

Less: Depreciation on Ijara Muntahia Bittamleek (note 8) (105,868) (95,456)

18,808 13,639

18 RETURN ON UNRESTRICTED INVESTMENT ACCOUNTS

Group’s share as a Mudarib is determined at the level of each subsidiary and is based on the terms and conditions of the related agreements.

19 OTHER FEES AND COMMISSION INCOME

2006 2005
US$ 000 US$ 000

Fees and commissions 57,229 51,261

Letters of credit 21,750 14,443
Guarantees 7,471 4,129
Acceptances 1,346 1,720

87,796 71,553

20 OTHER OPERATING INCOME

2006 2005
US$ 000 US$ 000

Foreign exchange gain 7,616 5,420

Gain on sale of property and equipment 347 4,266
Others 21,364 13,260

29,327 22,946

21 DEPRECIATION AND AMORTISATION

2006 2005
US$ 000 US$ 000

Property and equipment (note 12) 11,878 13,798

Amortisation of intangible assets 1,282 1,037

13,160 14,835

Albaraka Banking Group Annual Report 2006

53
Notes to the Consolidated Financial Statements
31 December 2006

22 OPERATING EXPENSES

2006 2005
US$ 000 US$ 000

General and administration 46,075 46,046

Business 10,959 11,668
Premises 5,379 4,354

62,413 62,068

23 PROVISIONS

Sales Mudaraba Musharaka Ijarah Other Other

receivables financing financing Investments receivables assets provisions Total
2006 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Provisions at 1 January 145,487 643 1,102 5,935 1,084 3,065 6,473 163,789

Charged during the year 38,509 - 163 216 1,366 2,973 9,041 52,268
Written back during the year (18,306) - (162) (367) (418) - - (19,253)

20,203 - 1 (151) 948 2,973 9,041 33,015

165,690 643 1,103 5,784 2,032 6,038 15,514 196,804
Written off during the year (12,397) (82) (15) (1,113) - (1,123) (551) (15,281)
Amount appropriated to profit
equalisation and investment risk
reserve (Note 15.1) - - - - - - (4,363) (4,363)
Other adjustments 487 - 172 (82) 1,296 4,131 - 6,004

Provisions at 31 December 153,780 561 1,260 4,589 3,328 9,046 10,600 183,164

Notes 4 5 6 10 11 13 14

2005

Provisions at 1 January 128,138 891 940 6,317 1,181 3,578 14,115 155,160
Acquisition through subsidiary (note 29) 1,447 - 442 - - 253 - 2,142

Charged during the year 42,453 - 21 268 609 2,577 6,601 52,529
Written back during the year (13,039) (248) (495) (21) (705) (4,627) (1,164) (20,299)

29,414 (248) (474) 247 (96) (2,050) 5,437 32,230

158,999 643 908 6,564 1,085 1,781 19,552 189,532

Written off during the year (5,292) - - (629) - - (10,966) (16,887)

Amount appropriated to profit
equalisation and investment risk
reserve (Note 15.1) (8,220) - - - - - (2,113) (10,333)
Other adjustments - - 194 - (1) 1,284 - 1,477

Provisions at 31 December 145,487 643 1,102 5,935 1,084 3,065 6,473 163,789

Notes 4 5 6 10 11 13 14

Albaraka Banking Group Annual Report 2006

54
Notes to the Consolidated Financial Statements
31 December 2006

24 BASIC AND DILUTED EARNINGS PER SHARE

Basic and diluted earnings per share amounts are calculated by dividing net profit for the year attributable to equity holders of the parent by the
weighted average number of shares outstanding during the year as follows:

2006 2005

Net income attributable to the ordinary equity shareholders of the parent for the year - US$ '000 80,252 79,372

Weighted average number of shares outstanding during the year (in thousands) 550,000 481,707

Earnings per share - US cents 15 16

The weighted average number of shares of the previous year has been adjusted for the capitalisation of retained earnings and statutory reserve made
in 2006.

25 CASH AND CASH EQUIVALENTS

2006 2005
US$ 000 US$ 000

Balances with central banks excluding mandatory reserve 740,751 802,677

Balances with other banks 507,423 587,048
Cash and cash in transit 140,970 100,843

1,389,144 1,490,568

26 RELATED PARTY TRANSACTIONS

Related parties comprise major shareholders, directors of the Group, entities owned or controlled, jointly controlled or significantly influenced by
them and companies affiliated by virtue of shareholding in common with that of the Group.

The income and expenses in respect of related parties are as follows:

2006 2005
US$ 000 US$ 000

Net income from joint sales receivable and jointly financed contracts and investments 4,131 8,798
Net (loss) / income from self financed financing and investments (805) 39,474
Return on unrestricted investment - 335

Albaraka Banking Group Annual Report 2006

55
Notes to the Consolidated Financial Statements
31 December 2006

26 RELATED PARTY TRANSACTIONS CONTINUED

The significant balances with related parties at 31 December were as follows:

2006 2005
US$ 000 US$ 000

Assets:
Sales receivables 7,575 10,273
Mudaraba financing 34,624 128,261
Musharaka financing 4,369 -
Ijarah Muntahia Bittamleek 10,471 11,629
*Investment in associates - 96,767
*Investments 90,696 1,250
Other assets 8,160 -

*Refer note 9.2

Liabilities:
Customer current and other accounts 7,222 7,087

Unrestricted investment accounts 6,339 24,196

Restricted investment accounts 13,704 914

All related party exposures are performing and are free of any provision for possible credit losses.

Details of Directors’ interests in the Bank’s shares as at the end of the year were:

No. of No. of
shares directors

Categories:
Less than 1% 367,339 3
20% up to less than 50% 189,695,984 1

190,063,323 4

27 COMMITMENTS

2006 2005
US$ 000 US$ 000

Letters of credit 350,304 255,414

Guarantees 549,451 232,116
Acceptances 43,282 38,372
Others 39,655 31,890

982,692 557,792

Albaraka Banking Group Annual Report 2006

56
Notes to the Consolidated Financial Statements
31 December 2006

28 RISK MANAGEMENT
Risk management is an integral part of the Group’s decision-making process. The management committee and executive committees, guide and
assist with overall management of the Group’s balance sheet risks. The Group manages exposures by setting limits approved by the Board of
Directors.

a) Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances.
To limit this risk, management has arranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on regular basis.

The table below summarises the maturity profile of the Group’s assets and liabilities based on contractual repayment arrangements. The
contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the
contractual maturity date and do not take account of the effective maturities as indicated by the Group’s retention history of its investment
account holders and the availability of bank lines.

The maturity profile at 31 December 2006 was as follows:

Up to 1 to 3 3 to 6 6 months 1 to 3 Over
1 month months months to 1 year years 3 years Undated Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Assets
Cash and balances with banks 1,179,830 89,179 58,417 7,000 - 54,718 448,034 1,837,178
Sales receivables 820,436 717,402 662,226 585,283 735,128 533,251 - 4,053,726
Mudaraba financing 17,847 36,138 13,653 2,811 19,143 45,079 - 134,671
Musharaka financing 6,187 10,985 9,432 16,710 18,227 22,903 - 84,444
Investment properties - - - - - - 68,184 68,184
Ijarah Muntahia Bittamleek 7,892 15,637 19,133 32,025 115,177 21,461 - 211,325
Investment in associates - - - - - - 17,876 17,876
Investments 193,686 182,701 127,273 149,767 74,250 114,166 - 841,843
Ijarah receivables 3,264 8,720 1,054 2,327 5,454 277 - 21,096
Property and equipment - - - - - - 130,951 130,951
Other assets 83,718 29,408 15,473 8,421 21,111 19,175 47,227 224,533

Total Assets 2,312,860 1,090,170 906,661 804,344 988,490 811,030 712,272 7,625,827

Liabilities
Customer current and other accounts 831,555 134,553 84,610 283,236 - - - 1,333,954
Due to banks 32,460 40,627 41,388 801 - - 115,276
Other liabilities 144,449 25,428 18,903 18,996 59,189 1,142 - 268,107

Total liabilities 1,008,464 200,608 144,901 303,033 59,189 1,142 - 1,717,337

Unrestricted investment accounts 2,118,856 846,814 462,864 661,202 357,397 250,233 - 4,697,366

Total equity - - - - - - 1,211,124 1,211,124

Total liabilities, unrestricted

investment accounts and equity 3,127,320 1,047,422 607,765 964,235 416,586 251,375 1,211,124 7,625,827

Net liquidity gap (814,460) 42,748 298,896 (159,891) 571,904 559,655 (498,852) -

Albaraka Banking Group Annual Report 2006

57
Notes to the Consolidated Financial Statements
31 December 2006

28 RISK MANAGEMENT CONTINUED

a) Liquidity risk continued
The maturity profile at 31 December 2005 was as follows:

Up to 1 to 3 3 to 6 6 months 1 to 3 Over
1 month months months to 1 year years 3 years Undated Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Assets
Cash and balances with banks 1,315,381 54,317 62,173 25,094 103 33,500 354,065 1,844,633
Sales receivables 471,451 524,763 474,536 494,682 683,463 337,299 - 2,986,194
Mudaraba financing 4,781 56,039 23,409 29,362 30,658 22,986 - 167,235
Musharaka financing 6,027 7,604 9,944 9,822 22,864 17,431 - 73,692
Investment properties - - - - - - 44,010 44,010
Ijarah Muntahia Bittamleek 6,860 13,559 16,056 32,562 82,177 19,253 - 170,467
Investment in associates - - - - - - 125,208 125,208
Investments 136,588 161,353 60,217 108,567 90,050 28,239 - 585,014
Ijarah receivables 5,855 3,897 685 4,201 3,876 1,765 - 20,279
Property and equipment - - - - - - 115,355 115,355
Other assets 85,287 11,333 3,278 4,432 24,479 6,178 40,000 174,987

Total Assets 2,032,230 832,865 650,298 708,722 937,670 466,651 678,638 6,307,074

Liabilities
Customer current and other accounts 924,020 100,903 152,076 8,593 - - - 1,185,592
Due to banks 85,705 14,765 10,959 - - 3 - 111,432
Other liabilities 84,247 12,459 37,136 19,904 50,689 5,357 - 209,792

Total liabilities 1,093,972 128,127 200,171 28,497 50,689 5,360 - 1,506,816

Unrestricted investment accounts 2,036,265 657,780 534,576 312,103 365,669 126,732 - 4,033,125

Total equity - - - - - - 767,133 767,133

Total liabilities, unrestricted

investment accounts and Equity 3,130,237 785,907 734,747 340,600 416,358 132,092 767,133 6,307,074

Net liquidity gap (1,098,007) 46,958 (84,449) 368,122 521,312 334,559 (88,495) -

b) Credit risk
Credit risk is the risk that one party to a financial contract will fail to discharge an obligation and causes the other party to incur a financial loss.
The Group controls credit risk by monitoring credit exposures, and continually assessing the creditworthiness of counterparties. Financing
contracts are mostly secured by the personal guarantees of the counterparty, by collateral in form of mortgage of the objects financed or other
tangible security.

Type of credit risk

Financing contracts mainly comprise sales receivables, mudaraba financing and musharaka financing.

Sales receivables
The Group finances these transactions through buying a commodity which represents the object of the murabaha and then resells this commodity
to the murabeh (beneficiary) at a profit. The sale price (cost plus the profit margin) is repaid in installments by the murabeh over the agreed
period. The transactions are secured at times by the object of the murabaha (in case of real estate finance) and other times by a total collateral
package securing the facilities given to the client.

Mudaraba financing
The Group enters into mudaraba contracts by investing in funds operated primarily by other banks and financial institutions for a definite period
of time.

Albaraka Banking Group Annual Report 2006

58
Notes to the Consolidated Financial Statements
31 December 2006

28 RISK MANAGEMENT CONTINUED

b) Credit risk continued
Musharaka financing
An agreement between the Group and a customer to contribute to a certain investment enterprise, whether existing or new, or the ownership
of a certain property either permanently or according to a diminishing arrangement ending up with the acquisition by the customer of the full
ownership. The profit is shared as per the agreement set between both parties while the loss is shared in proportion to their shares of capital
or the enterprise.

c) Concentration risk
Concentrations arise when a number of counter parties are engaged in similar business activities, or activities in the same geographic region,
or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic,
political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular
geographic location.

The distribution of assets, liabilities and unrestricted investment account items by geographic region was as follows:

2006 2005
Unrestricted Unrestricted
investment investment
Assets Liabilities accounts Assets Liabilities accounts
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Geographic region:
Domestic (Bahrain) 509,899 28,345 108,003 301,566 10,361 89,694
Other Middle East 3,803,788 831,380 2,680,689 3,166,217 777,474 2,305,765
Europe 1,883,831 342,257 1,191,356 1,628,020 288,155 1,032,261
Asia 326,819 50,443 228,419 263,836 54,894 164,095
Africa 1,049,614 460,447 478,311 897,085 373,486 441,251
Others 51,876 4,465 10,588 50,350 2,446 59

7,625,827 1,717,337 4,697,366 6,307,074 1,506,816 4,033,125

Segment information relating to distribution of operating income, net operating income and net income attributable to the shareholders of
the parent by geographic region was as follows:

2006 2005
Net income Net income
attributable attributable
Total Net to the share Total Net to the share
operating operating holders of operating operating holders of
income income the parent income income the parent
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Geographic region:
Domestic (Bahrain) 21,882 (6,264) (7,806) 12,386 (8,761) (9,931)
Other Middle East 121,739 68,943 29,490 128,209 75,942 46,181
Europe 119,979 65,377 37,318 91,194 42,190 23,523
Asia 2,164 3,320 2,674 6,205 6,197 4,822
Africa 71,397 38,882 16,170 59,590 30,731 14,611
Others 2,406 2,406 2,406 166 184 166

339,567 172,664 80,252 297,750 146,483 79,372

d) Market risk
Market risk arises from fluctuations in profit rates, equity prices and foreign exchange rates. The management of the Group have set limits on
the level of risk that may be accepted. This is monitored by the local management at the subsidiary level.

Albaraka Banking Group Annual Report 2006

59
Notes to the Consolidated Financial Statements
31 December 2006

28 RISK MANAGEMENT CONTINUED

d) Market risk continued
Profit rate risk
The Group has risk to changes in profit rate arising from the possibility that changes in profit rate will affect the fair value, of the financial
instruments or will affect future cash flows.

Equity price risk

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices and the value of
individual stocks. The equity price risk exposure arises from the investment portfolio. The Group manages this risk through diversification of
investments in terms of geographical distribution and industry concentration.

Foreign exchange risk

Foreign exchange risk arise from the movement of the rate of exchange over a period of time. Positions are monitored on a regular basis to
ensure positions are maintained within established approved limits.

The Group had the following significant net exposures denominated in foreign currencies as of 31 December:

2006 2005
US$ 000 US$ 000
equivalent equivalent
long (short) long (short)

Jordanian Dinar 226,443 136,815

Turkish Lira 209,471 53,287
Egyptian Pound 92,699 33,001
Sudanese Dinar 36,003 20,520
Bahraini Dinar 21,786 19,423
Algerian Dinar 69,327 18,417
Lebanese Pound 13,927 15,919
Saudi Riyal 578 4,071
Pound Sterling 930 715
Tunisia Dinar 212 138
Euro (5,231) (1,016)
Others 24,688 3,119

Albaraka Banking Group Annual Report 2006

60
Notes to the Consolidated Financial Statements
31 December 2006

29 BUSINESS COMBINATION
Acquisition of Albaraka Bank-Sudan
On 1 January 2005, the Bank acquired 86.2 % of the voting shares of Albaraka Bank-Sudan (from a related party at the fair value of net assets), an
unlisted company based in Khartoum specialising in providing islamic products.

The fair value of the identifiable assets and liabilities of Albaraka Bank-Sudan as at the date of acquisition were:

Recognised
on acquisition
US$ 000

Assets
Cash and balances with Central Bank and other banks 36,343
Sales receivable 26,762
Investments 20,300
Property and equipment 13,283
Other assets 13,206
Musharaka financing 5,700
115,594

Liabilities
Customers' current and other accounts 67,223
Other liabilities 21,700
Unrestricted investment accounts 5,774
Due to banks and financial institutions 500
95,197

Fair value of net assets for 100% shares 20,397

The Group's share for 86.20% 17,584

Cash inflow on acquisition:

Net cash acquired with the subsidiary 36,343
Cash paid -

Net cash inflow 36,343

The total cost of the combination was US$ 17,583,786 for 86.2% of the voting and comprised an issue of equity instruments. The Bank issued
17,583,786 ordinary shares with par value of US$ 1 each.

US$ 000

Cost:
Shares issued, at fair value 17,584

Albaraka Banking Group Annual Report 2006

61
Notes to the Consolidated Financial Statements
31 December 2006

30 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length
transaction. Consequently, differences can arise between carrying values and fair value estimates.

Included under non trading investments are unquoted available for sale investments amount to US$ 126.6 million (2005: US$ 73.6 million) which
are carried at cost due to lack of other reliable methods for arriving at a reliable fair value for these investments.

The fair values of other on-balance sheet financial instruments are not significantly different from the carrying values included in the financial statement.

31 SOCIAL RESPONSIBILITY
The Group discharges its social responsibilities through donations to charitable causes and organisations.

32 COMPARATIVE FIGURES
Certain of the prior year’s figures have been reclassified to conform to the presentation adopted in the current year. Such reclassification did not
affect previously reported net income or equity.

Albaraka Banking Group Annual Report 2006

62
ABG Contact Directory

Albaraka Banking Group Annual Report 2006

63
ABG Contact Directory
Head Office
Albaraka Banking Group
Adnan A. Yousif
President & Chief Executive
Tel: +973 17533051 / +973 17541122
Fax: +973 17530147
adnanyousif@barakaonline.com
Othman A. Sulieman
Deputy Chief Executive
Tel: +973 17520720 / +973 17541122
othman@barakaonline.com
Sayed Majeed Hussain Alawi
Senior Vice President - Head of Internal Audit
Tel: +973 17520707 / +973 17541122
majeed@barakaonline.com
K.Krishnamoorthy
Senior Vice President - Head of Strategic Planning
Tel: +973 17520700 / +973 17541122
kkrishnamoorthy@barakaonline.com
Abdulrahman Shehab
Senior Vice President -
Head of Operation & Administration
Tel: +973 17540384 / +973 17541122
arshehab@barakaonline.com
Hamad Abdulla Ali Eqab
First Vice President - Head of Financial Control
Tel: +973 17525610 / +973 17541122
heqab@barakaonline.com
J.P. Szalay
First Vice President -
Head of Credit Risk & Management
Tel: +973 17541122 / +973 17520702
pszalay@barakaonline.com
Abdul Rauf Sivany
First Vice President -
Head of Treasury & Investments
Tel: +973 17541122 / +973 17540381
r.sivany@alaminbank.com
Dr. Ahmad Mohyedeen
Head of Research and Development
Tel: +9662 6710000 Ext 3382
Fax: +9662 6171016
f.ali@albaraka.com
Ahmed M. AbdulGhaffar
Assistant Vice President - Investors’ Relations
Tel: +973 17520701 / +973 17541122
aghaffar@barakaonline.com
Head Office
AlBaraka Banking Group
AlBaraka Tower, Diplomatic Area,
P.O. Box 3190 Manama
Kingdom of Bahrain
Tel: +973 17 541 122
Fax: +973 17 536 533
www.abg.bh
64
Subsidiaries
Jordan Islamic Bank AlBaraka Bank Sudan
Jordan Islamic Bank was the first Islamic bank to be AlBaraka Bank Sudan was established in 1984 and its
established in Jordan, in 1978. Its activities comprise retail, activities comprise retail, commercial and investment
commercial and investment banking. Jordan Islamic Bank banking. The bank operates 23 branches. The contact
has a total of 64 branches. The contact details of the details of the bank are:
bank are:
Mr. Abdulla Khairy Hamid
Mr. Musa A. Shihadeh General Manager
Vice Chairman & General Manager AlBaraka Bank Sudan
Jordan Islamic Bank AlBaraka Tower
P.O. Box 926225, Amman, Jordan P.O. Box 3583, Khartoum, Sudan
Tel: +9626 567 7377 Tel: +249183 780 688
Fax: +9626 566 6326 Fax: +249183 788 585
Website: www.islamicbank.com.jo Website: www.albarakasudan.com
Al Amin Bank E.C. AlBaraka Bank Ltd
Al Amin Bank was incorporated in 1987 AlBaraka Bank Ltd was established in 1989
and functions under an Islamic investment banking and operates as a commercial Islamic bank. The bank
licence issued by the Bahrain Monetary Agency. The has 5 branches. The contact details of the bank are:
Bank’s activities comprise of Islamic investment banking
and fund management. The contact details Mr. Shabir Chohan
of the bank are: Chief Executive Officer
AlBaraka Bank Ltd.
Mr. Mohamed Isa Mutaweh 1st Floor, 134, Commercial Road,
General Manager and Board Member Durban 4001, South Africa
Al Amin Bank E.C. Tel: +2731 366 2800
AlBaraka Tower, P.O. Box 3190 Fax: +2731 305 2631
Manama, Kingdom of Bahrain Website: www.albaraka.co.za
Tel: +973 17 540 000
Fax: +973 17 537 551 AlBaraka Bank Lebanon
Website: www.alaminbank.com AlBaraka bank Lebanon was established in 1992 and
operates under a commercial banking licence. Its
AlBaraka Islamic Bank activities comprise retail and commercial banking. The
AlBaraka Islamic Bank was incorporated in Bahrain in bank operates 5 branches. The contact details of the
February 1984 and operates as an off-shore and bank are:
commercial Islamic bank. It obtained a commercial
banking licence in Pakistan in 1991. The activities of the Mr. Mutasim Mahmassani
bank are retail, commercial and investment banking. The General Manager
bank operates 14 branches in Bahrain and Pakistan. The AlBaraka Bank Lebanon
contact details of the bank are: Rashid Karameh Street, Verdun 2000 Centre,
Beirut, Lebanon
Mr. Salah Ahmed Zainalabedin Tel: +9611 808008
General Manager Fax: +9611 806499
AlBaraka Islamic Bank Website: www.al-baraka.com
AlBaraka Tower, P.O. Box 1882
Manama, Kingdom of Bahrain Bank Et-Tamweel Al-Tunisi Al-Saudi
Tel: +973 17 535 300 Bank Et-Tamweel Al-Tunisi Al-Saudi was established in
Fax: +973 17 530 695 1983. The bank has both off-shore and local retail
Website: www.barakaonline.com activities The bank operates 7 branches. The contact
details of the bank are:
Mr. Shafqaat Ahmed
Regional General Manager & Country Head Mr. Essa Al-Haidosi
Al Baraka Islamic Bank, Pakistan Vice Chairman & General Manager
Bank Et-Tamweel Al-Tunisi Al-Saudi
PICIC House, 14, Shahrah’e Aiwan’e Tajarati
P.O. Box 1686, Lahore 54000, Pakistan 88, Avenue Hedi Chaker 1002, Tunis, Tunisia
Tel: +92-42-6309961 Tel: +21671 790000
Fax: +92-42-6309965 Fax: +21671 780235
Banque AlBaraka D’Algerie The Egyptian Saudi Finance bank
Banque AlBaraka D’ Algerie was incorporated in May The Egyptian Saudi Finance bank was incorporated in
1991 as an Islamic Bank and operates under a 1980 and its activities consist
commercial banking licence issued by the Bank of of retail and commercial banking. The bank operates 7
Algeria. The main activities of the bank are retail and branches and several offices. The contact details of the
commercial banking. The Bank operates 16 branches. bank are:
The contact details of the bank are:
Mr. Ashraf Al Ghamrawi
Mr. Mohammed Seddik Hafid Managing Director
Board Member & General Manager The Egyptian Saudi Finance Bank
Banque AlBaraka D’Algerie 60, Mohie Elddin Abu ElEzz Street
32, rue des Freres Djillali, Birkhadem, P.O. Box 455 Dokki, Cairo, Egypt
Algiers, Algeria Tel: +202 748 1222
Tel: +21321 916 450-5 Fax: +202 761 1436/7
Fax: +21321 916 457 / 8 Website: www.esf-bank.com
Website: www.albaraka-bank.com
AlBaraka Turk Participation Bank
AlBaraka Turk Participation Bank was established in
1984. The bank’s activities consist of retail and
commercial banking. The bank operates 63 branches.
The contact details of the bank are:
Mr. Adnan Buyukdeniz
General Manager and Board Member
AlBaraka Turk Participation Bank
Buyukdere Cad No.78
80290 Mecidiyekoy, Istanbul, Turkey
Tel: +90 212 274 9900
Fax: +90 212 272 4470
Website: www.albarakaturk.com.tr
Albaraka Banking Group Annual Report 2006